Tax considerations

The tax treatment of any sale proceeds (whether received on completion or in the future) and of any holdings in the new structure will directly impact how much value you will end up with as a result of the transaction. You will most likely want any transaction to be structured to attract the minimum rate of tax available. It is important to note that tax structuring may not be possible shortly before the transaction and generally may not be implemented with retroactive effect.

Consideration structures

Your individual tax position will depend on the type of consideration you receive, the method of calculating it and the timing of any payment. You may receive any combination of the following types of consideration: cash, shares, or loan notes, and your tax position may be complicated by any entitlements to receive consideration post-sale, possibly by way of an "earn out".

Particular care should be taken by individuals in transactions where "rollover" or "earn-out" mechanisms are included in the drafting. Although they are useful commercial tools to incentivise founders and senior management staying on in the business (particularly in a private equity context) and bridge valuation gaps between buyers and sellers, they can result in unexpected tax consequences.

You should seek tax advice as early as possible on the appropriate way to structure such entitlements.

General tax considerations

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Earn-outs

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Rollover

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Pre-sale tax planning

There may be steps that you can take in advance of the sale to minimise your tax exposure, or to crystalise the benefit of existing tax reliefs. In some instances these measures are time-sensitive or require lead time. Furthermore, some circumstances may even lead to an exit tax. Be sure to consult with a tax expert already at an early stage in the process to optimize the tax implications of the transaction.

Post-Sale considerations

The sale of a business provides an opportunity for you to review your personal affairs to ensure you have a suitable wealth, estate and governance framework in place, including reviewing and updating any existing arrangements.

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