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If you have recently decided that you would like to exit your business and consider your next chapter, being prepared and getting the right advice as early as possible cannot be underestimated.
We have outlined three of the key ways you can exit your business to help decide which one is right for you.
Are your successor’s family or valued employees? If so, it is possible to structure a sale to them by way of a management buyout (MBO). An MBO typically involves a new company owned by the purchasers, buying the shares of the old.
The sale can be funded by either external finance or from future profits of the ongoing business.
How the MBO is financed is a key factor as this may determine over what period of time you receive your consideration.
Selling your business to a third party usually means you can realise more cash up front.
Are you selling shares or assets? As previously mentioned this makes a big difference to your tax position and the value you have left.
Careful negotiation with the purchaser and ensuring your business structure is sound can assist with this
Securing external investment typically will involve a certain level of cash pay-out, some equity and deferred consideration in the form of loan notes.
It usually requires a tie-in period for you as the vendor will want you to continue to lead and grow the business, meaning your exit may be in stages.
Another option could be to sell your shares to an employee-owned Trust (EOT). In 2014 the government introduced a significant tax incentive to encourage businesses to adopt an employee ownership model, with an exemption from CGT and IHT on the sale of shares to an Employee Ownership Trust (EOT). An EOT is a special form of employee benefit Trust which is set up to hold shares on behalf of all eligible employees of the company (usually employees who hold less than 5% of the company’s shares).
This is particularly beneficial for shareholders who do not qualify for the lower CGT rate with Business Asset Disposal Relief (BADR) or where the amount at stake exceeds the £1 million lifetime limit for BADR.
A disposal of shares to an EOT provides both an extremely tax-efficient exit solution for shareholders and a mechanism that encourages and motivates the workforce going forward. The rules are complex with various qualifying conditions so it is important that professional advice is sought.
We can help to prepare your business for sale as well as ensuring that as the business owner your wealth is protected. Whether it’s planning for your retirement, passing ownership of the business to the next generation or divestment of a non-core business, the importance of being prepared should not be underestimated.
For more information on how we can help support you throughout your business journey get in touch with Rebecca Durrant, your usual Crowe contact or visit Crowe Business Lifecycle.
