The panel were certainly not short of issues to discuss and questions to answer in this lively interactive session. They have contributed some of their top tips to take away below:
- Talk to a tax advisor at the outset to ensure there are no surprises further down the line – the devil is in the detail in terms of ensuring qualification for the zero% capital gains tax and tax free bonuses.
- Don’t over complicate the sale arrangements and give HMRC grounds for questioning the commerciality. A zero% rate of capital gains tax is generous, so don’t put it at risk.
- Ensure the price at which you sell to the EOT is at fair market value and has input from a professional. Ensure that you consider what sort of impact the pandemic has had on the long term rather than the short term value of the business.
- While most sales to EOT’s are funded by the future profits of the business they can be externally funded as well – we can help with preparing cash flow modelling to take to potential lenders. Invoice discounting is also worth considering to generate free cash.
- If you are not selling 100% of the shares to an EOT, make sure there are sufficient shares to avoid the EOT being diluted below 51%.
- After the sale to the EOT consider granting EMI options to key senior management – this enables them to participate to a larger degree in any future third party sale.
- Engage with staff and have a clear communications plan so they feel involved and understand the benefits for them, consider putting an employee council in place.
- Remember that if former owners become trustees of the EOT they will have to wear two different hats in their roles as both trustees and directors of the company – consider whether additional trustees/directors could be helpful.
Ensure you understand how your role in the business will still be vital but different as an employee rather than an owner.