8
THE MECHANICS OF A MANAGEMENT BUY-OUT
There are two main structures for management buyouts, and the right one for your situation will depend on factors such as how the transaction will be financed.
Company purchase of own shares (CPOS)
The company effectively buys back and subsequently cancells the shares held by those individuals exiting the business.
While this is generally more straightforward to implement, particularly from a legal perspective, and therefore cost effective, it is only suitable in certain circumstances.
For example, it requires that all consideration owed to the exiting shareholders is settled in full on completion, with no ability to pay the consideration to the shareholders on a deferred basis.
In addition, the company must have sufficient distributable reserves (shown on the balance sheet) to match the proceeds, whilst leaving adequate cash in the business post-sale for the company’s working capital requirements.
Proceeds received by the exiting Chris Brown, Brown & Co
shareholders are treated, as standard, as a distribution subject to income tax rather than capital gains tax.
There is strict criteria which must be met to secure capital gains tax treatment.
Newco buy-out (Newco)
A new company is formed to acquire the entire issued share capital of the existing company from the current shareholders.
Those exiting the business are paid for their shares, and those intending to continue simply receive shares in Newco to replace
www.brownandco.uk
their old shares. The consideration can include deferred elements if required, giving more flexibility in settling the consideration.
The conditions which need to be met in order for the proceeds paid to the exiting shareholders to be assessed under capital gains tax, are more easily satisfied under a newco buyout than a CPOS.
The new owners can determine the ownership structure of newco.
In both options, it’s recommended that advance clearance is sought from HMRC in order to ensure all the criteria is met for agreement on the tax treatment.
In the majority of cases, a newco buy-out is likely to be the preferred route, as payment is more flexible with fewer potential tax and commercial issues for both exiting and ongoing shareholders.
In addition, a CPOS is only appropriate where there will be no new shareholders, whilst the newco buy-out allows for both new and existing shareholders.
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68
