You’ve grown your business and have decided to exit.

Maybe the next generation of your family are not interested in taking the business forward, or maybe you would like to reap the rewards of your efforts and realise the value you have created.

You might be thinking about a share or asset share, a private equity deal, or perhaps even an IPO. Each is a transformational event and requires significant planning to ensure you and your organisation are ready.

Having a tax efficient structure in place that works for existing shareholders, option holders, those who plan to exit, and future investors is key.

When should I start to plan? 

The earlier the better!

Ideally you should have a plan in place at least 12 months, and ideally 24 months, ahead of the transaction. Getting advice early is critical.

How much tax will I pay? 

You will want to know how much tax you will pay and when.

Early planning may enable you to restructure the business, if appropriate, prior to the sale.

This will include understanding whether there are any opportunities to structure a deal to maximise tax reliefs. There are various reliefs available which may enable you to restructure the business without a tax relief, but careful planning, and timing, are crucial.

Closer to the time of sale, you may want to consider the extent to which you “de-risk”, step away from the business and bank the capital versus retaining an interest in the business, or any new structure, and benefiting from future growth.

I want to keep the business premises and potentially rent those to the new business. Can I do that?

Subject to agreement with the purchaser, this may be possible. If the property is held by the company itself, it will need to be distributed out of the company, or to a new property operating company.

It’s often possible to achieve this with no or minimal tax costs but early planning is important.

I am thinking of leaving the UK. What impact might my future residence have?

As a pre-requisite to any planning, it is important to fully understand the tax implications in the location you plan to be, especially if you could still be working for the company and/or making regular visits back to the UK.

What about asset protection? 

Realising a significant sum on an exit focuses the mind on future asset protection.

Trusts can provide protection, but it is difficult to put significant amounts of cash into a family trust without creating an immediate tax liability. Shares however may benefit from reliefs so that there is no such immediate charge. Therefore, you might consider settling some shares on trust prior to the exit.

How do I keep my team incentivised? 

Ahead of a transaction it will be critical that your management team is happy, focused and bought into the next phase for the business.

You might consider share options, and, if you already have a scheme in place, you should ensure that the team understands how they will be impacted by any liquidity event to ensure they remain motivated and focused.

I have heard that some business owners sell to an Employee Ownership Trust. What’s that? 

A sale to an EOT can offer many advantages, including the incentivisation of employees through indirect ownership. It is also attractive because the sale is free of Capital Gains Tax for the existing shareholders and offers the flexibility of a full or partial exit,

As it does not require a third-party purchaser, it is less disruptive to the business and the due diligence process is more straightforward. It can also offer a solution to succession issues. Typically, the purchase price is funded from future profits.