The process of exiting a business involves various options, and each option carries its own tax implications. While tax efficiency is an important factor to consider, it is equally vital to evaluate the commercial aspects and align them with your goals. Early planning can help optimise the value of the sale and achieve a tax-efficient outcome.
In this article we are going to discuss some common exit options and their associated tax considerations:
Sale of Assets vs. Sale of Shares:From a tax perspective, it is often advantageous for the exiting shareholder to sell their shares in the company. In this case, the shareholder receives the sale proceeds personally and incurs Capital Gains Tax on the profits, assuming the company being sold is not part of a group.
Liquidation or Winding Up:If the sale of the company involves the trade and assets or if the business naturally comes to an end, the company will need to be closed down. This can be achieved through formal liquidation or potentially an informal winding up. It may be possible to obtain capital treatment for the final distribution.
Management Buyout:When a management team intends to take over the ownership of the company, they can proceed with a management buyout. There are various ways to structure such transactions, and it is important to carefully consider the tax implications. At Oldfield we have developed a Holding Company Buyout solution, which enables funds to come from the company rather than personally and creates the facility to stage the buy-out payments, which greatly assists cashflow. There are significant tax advantages too, including mitigating, or even eliminating, Stamp Duty on the transaction, and protecting the recipient from Inheritance Tax exposure. This is something our tax team are highly experienced in, therefore if this the route you are considering going down please get in touch.
Company Purchase of Own Shares: In situations where an individual is exiting the business, the company may be able to repurchase its own shares. Whether you're acquiring your business partner's stake in the company due to retirement, a change in business goals, or a desire to move on to new ventures, the thought of a buyout of a business partner can be daunting. This can be a challenging task, and it's important to approach it with care and consideration especially when you consider that it will likely require a significant amount of money.
It is worth noting that the information provided here offers a brief overview of several exit strategies. Each business sale is unique, and it is crucial to engage with a professional advisor to discuss your specific objectives and intentions. Collaborating with experts ensures that the best exit strategy for you and your business can be implemented while taking into account both tax and commercial considerations.
If you would like further guidance on shareholder buyouts or to book a free consultation to discuss your specific requirements with one of our tax consultants - please fill out the form below
As outlined in this article there are various routes and options to go down. As always, we recommend speaking to your advisors on the best steps before making any changes. For more information on how we can help you and your business, or to discuss the options above in more detail please contact us via info@oldfieldadvisory.com or call 02476673160 for further support and advice. Let’s work together to grow and strengthen your business.
Please note: This article is provided for information only and was correct as at time of writing (30/05/23). Any lists and details provided above are not exhaustive and are not intended to be full and complete guidance. No action should be taken without consulting detailed legislation or seeking independent professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this article can be accepted.
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