Currently, if more than 33% of the shareholding changes the losses of a company are forfeited, what is being proposed is that this is reduced or removed for equity changes. Here is an example provided;

A start-up firm, Conference in the Clouds Limited (CIC) offers microphone and webcam software. It has been making large losses in recent years. However, it now wants to scale up significantly, given that more people are working from home and using videoconferencing.

Despite its promising early-development software, banks are unwilling to lend to CIC without it having a firm revenue base. CIC has approached several investors, and has received an offer from a video conferencing company, Cloudcon Limited (Cloudcon), to inject millions of dollars into CIC in return for a 75% stake in the business. CIC wants to accept the investment, but is wary of losing the value of its losses, which would be extinguished under the current shareholder continuity test. The Government's new ‘same or similar business’ test ensures that CIC can take on the new investor without losing its losses because its business will be of a same or similar nature as the business it was carrying on when it made the losses.

Given this, the price CIC’s owners receive for the 75% equity stake is higher (the business receives a greater capital injection) as the ability to carry forward losses makes the business more valuable to investors

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