UK Capitalising a UK Trust Corporation


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Hello.

I am establishing a new trust company that will act as a security trustee for certain transactions. Without going into detail on UK trust law (which is very complex), suffice to say that a company acting as a trustee will gain further authority, liability protections, etc. if it becomes a "Trust Corporation". One of the criteria to become a Trust Corporation is that the company has 250,000 of issued share capital, of which at least 100,000 is paid up.

I do not want to have this much money tied up in the company. I am basically pulling money off my personal mortgage loan to capitalise the company. So I would like to explore with the community if the following idea has any legs. My proposed transaction goes as follows:
  • Hold Co already exists. Director of Hold Co gives a director loan of 250,000 to Hold Co.
  • Hold Co uses proceeds of the director loan to subscribe for equity in Trust Co at 1 share = £1.00.
  • Therefore, Hold Co's cash asset becomes an equity asset of 250k in Trust Co
  • Trust Co then grants an intercompany loan of 250,000 back to the parent.
  • Trust Co's cash asset becomes a loan asset due from Hold Co
  • Hold Co uses the proceeds of the intercompany loan from Trust Co to fully repay the director loan.
After all of this, Hold Co is left with 250k of assets (Equity in Trust Co) and 250k of liabilities (loan due to Trust Co). Trust Co is left with an an asset of 250k (loan to Hold Co) and 250 liability (shareholder equity).

Is the arrangement described above acceptable? Even if technically acceptable, does it cause any valuation or other problems?

Thank you.
 

kirby

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At the end of all this, Trust Company has zero cash. I don't think this is what your UK regulators had in mind. Best see a UK legal expert before there is a big problem.
 

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