Over the last few years, we have come across a number of situations where an existing business structure has cost operators significant amounts of money on sale. This could have been through increased tax on the sale of the business, or through the structure of the business causing uncertainty to an acquirer and thus reducing the multiple of profits, which they are willing to pay for the business.
It is important to ensure, well in advance of a company sale, that the structure of the business is as attractive and tax efficient as possible. Situations which can cost you money if not correctly structured include:
- Not having a share structure that allows for Entrepreneurs Relief (in many cases the owner can believe they qualify for Entrepreneurs Relief, but the rules are different to the old Taper Relief regime);
- More than one trade in the company that is being sold and the cost of extraction;
- Having properties outside a company (maybe owned personally) when it would be beneficial for buyers and sellers if they were inside the company;
- Extracting cash prior to sale rather than retaining the cash in the business to benefit from Entrepreneurs Relief;
- Previous use of employment benefit trusts, EFRBS or other disguised remuneration schemes;
- Non-trading assets such as second homes or investment assets etc, being held by the company, which need reorganising prior to sale.