Most entrepreneurs will only get one opportunity to maximise the value of their personal and financial investment when they decide to leave their business. It is therefore essential that business owners have a clear exit and succession strategy in place, well in advance of their planned departure. Taylorcocks can provide structured tax-efficient advice which meets your specific goals.
If you have no obvious internal succession choice, a trade sale offers a variety of advantages. Benefits include:
- opening the business to a wide range of potential buyers
- a variety of bids to consider
- control over choice of purchaser
- opportunity to optimise strategic fit with same-sector business
Before placing your business on the market, you will need to ideally ensure that:
- any current issues have been fully resolved (e.g. tax investigations or other litigation)
- all internal systems, processes and controls are running smoothly
- the financial position is as favourable as possible under current circumstances
- you have worked out what you consider to be a fair valuation
Methods of selling
There are two principal methods for a trade sale are:
1) Share sales
From a seller’s point of view, it is normally (but not always) the more tax-efficient option. The gain realised on the sale will be subject to capital gains tax (CGT), which is the personal liability of the shareholder. Subject to certain conditions, entrpreneurs' relief may apply, reducing the CGT rate to 10% for lifetime gains of up to £10 million. In these cases, it is important to ensure that this relief is maximised.
Under a share sale, the buyer acquires the entire business, including its assets and liabilities, unless any of these are specifically excluded and taken out of the company before completion of the sale.
2) Sale of trade and assets
Purchasers will often prefer simply to acquire the company's assets. This may result in less favourable tax treatment for the vendor.
Normally, corperation tax will be at a minimum rate of 20% on the gain made by the company from the sale of its assets. Additionally, individual shareholders will usually still want to extract funds from the business. In most cases this can be achieved with an additional tax charge of around 10% (assuming entrepreneurs' relief is available). Professional fees may also be incurred in liquidating the business and to enable the extraction of funds. In some cases other options may be available.
Managed correctly, a trade sale can be an advantageous way to exit from your business. However, you need to consider carefully the following issues:
- Preparing an attractive business case for prospective vendors
- Establishing a fair value for the shares or business assets
- Understanding the potential tax liabilities from alternative methods of disposal
- Ensuring that the transaction is structured effectively for all parties
Taylorcocks can provide advice on all aspects of trade sales, including pre-sale preparation, valuation, tax-efficiency, deal structure and finding a potential purchaser. Please contact us to discuss this topic in more detail.