Selling Your Company To Employees: A Quick Glance
There has been a lot of talk about employee ownership sales over recent months – and clearly, there are a lot of misconceptions. Many people regard it as being a ‘soft’ option to hand over a business to employees with no real upside in value to the exiting shareholders. This is not true, as an Employee Ownership Trust can provide full financial value to the vendor, the employees, and the business.
So, what is an Employee Ownership sale? In simple terms, it is the sale of company shares to a trust which holds them for the benefit of the company employees, or, in other words, you are simply selling your company to employees. The underlying process that facilitates this can be vendor-led and most importantly, the valuation of the business is agreed on a commercial basis, with no requirement for 3rd party involvement.
Selling your company to employees also adds the advantage that, currently, such Employee Ownership sales attract zero Capital Gains Tax provided more than 51% of the shares are being sold. Unlike an open-market sale, the due diligence is significantly reduced, and the deal can be structured over an agreed time period, allowing the vendor to benefit from maximum commercial value, zero tax and ensuring a smooth handover during the selling of your company to employees.
Realising The Value of An Employee Ownership Sale
An Employee Ownership sale does not mean that the business is wholly run by the employees going forward. It is also a common misconception that the management need to pre-approve a sale – they do not, it can be entirely vendor led. The new management team will be created based on ability and may include former shareholders, who become employees of the business, enabling them to drive future growth and protect their legacy.
For employees, there is the potential to earn tax-free bonuses of up to £3,600 per annum and the knowledge that the trust is acting in their best interests. Selling to a trust can appear complex, but Avondale can run the whole service for you, from strategy, legal, trustee and financial, enabling you to concentrate on growing your business, and enjoying the sale rewards.
Evidence shows that employee-owners are highly motivated and that EOT businesses see increased retention of staff and greater productivity. During these times of uncertainty, we believe that Employee Ownership sales provide an optimal solution for vendors – enabling them to exit on a commercial basis whilst still ensuring the continued growth of the business, economic contribution and adding to the well-being of the employees.
These are all crucial points to consider when you are thinking about selling your company to employees. There is great value to be realised through an Employee Ownership sale, ranging from the reduced due diligence and shorter exit timeframe, to the 0% Capital Gains Tax. However, it must be noted that this 0% CGT isn’t set in stone, and could change at any time, and, in fact, it would be surprising if it wasn’t raised at all this year. Time will tell, of course.
If you are interested in taking your understanding of an EOT further, the webinar ‘How to Sell Your Business to Your Team‘ is now available.
Avondale are EME business advisors. Through our management consultancy, we support growth and scaling up. Through our M&A and corporate work, we secure investment and finance for EME businesses, help people buy and sell companies and enhance shareholder value. We recognise ambitious owners who require ambitious, specialist advisors.
If you are interested in selling your company to employees or would like to discuss any aspect of our services in confidence or would like some advice, please call +44(0)20 7788 8250, fill in our Contact Form or email us directly on av@avondale.co.uk.
