A Guide To Investment In Private Companies

investing in private companiesEvery investor knows the risks associated with investment in private companies. Total loss on investment is a real possibility and there is a limited market for these shares. However this is the most exciting areas of investment in today’s market and it provides excellent opportunities for capital growth. Venture capital may have high risk but it can also give high reward. In this highly speculative market where share prices may go up or down overnight and where past performance is no indicator for what may happen in the future, investors need financial advice to help them make the right decisions as they endeavor to invest in private sector and grow their capital portfolio.

CSS partners is a firm dedicated to offer such advice to both investors and companies. Their main focus is to help investors who want to take part in the Enterprise investment scheme (EIS) which is basically a government initiative to encourage investment in smaller unquoted companies, do so successfully. The EIS scheme as it is popularly known is helping small and medium investors in the UK have a personalized medium to grow their investment portfolio in mostly unquoted companies. The CSS partners is based in the UK and is an appointed representative of Charles Street Securities Europe LLP, authorized by the Financial Services Authority to carry its mandate in the Enterprise Investment scheme.

Investment in the private sector is risky and it requires no need for liquidity by investors with a chance of total loss on their investment. The EIS promotes investment in this sector in a number of ways which include offering various types of tax breaks which we will look at in detail. However not all companies are eligible to the benefits of the EIS scheme, with smaller companies with gross assets of no more than 15 million pounds and  with not more than 250 employees being the only ones eligible. In addition, tax benefits in this scheme are only available when new shares are bought by a company.

There are five types of tax relief under the EIS scheme with the first being the Capital gains Tax freedom. In this EIS tax relief, no tax on capital gains has to be paid by the company for the initial three years after registration. Loss relief is also given under EIS, ensuring that if EIS shares are sold at a loss, the loss can be offset against the capital gains tax, or against the investor’s capital income for that year or the previous year. Inherent tax exemption is also promoting investment under EIS where companies are exempt from paying inherent tax after holding the investment for two years.

Capital gains tax deferral relief ensures that gains on a different asset can be deferred indefinitely provided investment in EIS shares happens between 12-36 months after disposal of the original assets. Finally, investment relief tax allows EIS qualified investments for no less than three years to have income tax reduced by up to 30%.

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Comments

  1. I work as an investment banker/valuation analyst and there is definitely risk, but there is room for lots of reward.

  2. Tax relief from capital gains seems to be the main draw for many. We’ll see where regulation takes us in the next decade, I suppose.

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