The figures are correct, but as I said above he can't have any kind of binding agreement to acquire the shares back. Therefore he could end up with minority shareholders that he can't get rid of, so it could cost him a lot more than the cost of bank finance.
There's also connected persons restrictions in there, I'm not sure on the definition, so certain family members may not be an option (haven't got access or time to check the definition used right now).
Family members are allowed once they don't have any other connection with the business "Individuals may qualify in respect of investment in companies owned or run by family members or close relatives of theirs (provided they are not otherwise disqualified)." but you can't say agree for joe to invest in john's business and then john invest in joe's business. Also partners in the business cannot take advantage of it either.
Naturally there is a greater risk with outsiders being involved, but then again having outsiders involved can also be very beneficial for a business.
Its something for the accountant to look at (mines on hols - hence the enquiry here), but certainly opens up another avenue of funding for a business with the risk reduced by the tax relief and one that really hasn't got much publicity (can't see any thread on aam about it)
If you take an example with very basic numbers:
Say your company is presently worth €900k.
Alternative 1:
The company issues new shares worth €100k to investors (net cost to them after tax relief will be €59k). This individual now has a 10% stake in a company worth €1m.
Over the proceeding 3 years the company trades well and grows in value to €1.6m.
The investor's share, which cost them 59k is now worth 160k. They're delighted.
IF they are willing to sell you their share at that point you will have to pay them 160k for it, out of your own after tax income (or they may decide they are onto a good thing and wish to continue to hold their investment). So you own equity worth €1.44m, and 90% of all future profits generated.
Alternative 2:
You fund the expansion with borrowings from the bank, pay them their required rate of interest over the 3 years, and at the end of the period, you still own 100% of a company worth €1.5m (minus the capital & interest cost over the 3 years, say 115k). So your equity stake is worth €1.485m, and you will own ALL future profit generated.
Bottom line: If you could finance it with debt, and were confident of the ability to service that debt, it would make very little sense for you to dilute your ownership, and create the problem of how to recover that ownership in the future.
Adventures or concerns in the nature of trade
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