An alternative way of selling your business28th June 2018 | Posted in: Business Tax, Planning, Regulations
I attended the latest in a series of seminars today run by Corporate Development Scotland, which confirmed the burgeoning trend towards Employee Ownership Trusts (EOT) as an alternative route to the conventional trade sale on exit.
The underlying premise is that empowerment of a motivated management team can, with a guiding hand, deliver on a business transition to the ultimate benefit of the sellers, the remaining stakeholders and the business. It is a pre-requisite that the current owners relinquish control – meaning that more than 50% of voting equity needs to be sold to an EOT. Accordingly, a non-controlling investment can be retained and it also remains possible to be remunerated through salary and benefit through targeted share incentive schemes.
There is already a significant number of firms who have taken the EOT path – and no doubt an even larger number of beneficiary employees, who no doubt will start spreading the news when in receipt of rewards.
It is also evident that this is not a single force-fit scenario, but one that can be tailored to meet the specific needs. However, due to the tax-free share disposal, the tax-free annual bonuses and other tax-related incentives, care needs to be taken at the outset in order to achieve HMRC approval.
Hence, as EOT builds up a record of successful participation, there is a reliance on experienced funders and advisors who can assist in the implementation process. In other words, experienced guidance is paramount.
The source of initial guidance is supported by government in the form of a 2-step process conducted by experienced facilitators:
- Free 1- day Succession Review
- Free 2-day Feasibility Study
If progress to an EOT is decided, then up to 30% of professional fees in the delivery of an EOT are funded by the Government.
Accordingly, if any current owners have exit on the short to mid-term horizon, then planning to use an EOT should form part of their considerations.
If you wish to find out a little more, please contact me, David Guild, for further details on 0131 317 7377