top of page

Release your equity

Updated: Apr 18, 2023

3 Common Ways to release your equity...

Release your equity on day 1

Release your equity on day one...


In some instances, businesses may benefit from being part of a larger organisation that can offer employees career progression and is able to take the business to the next level.


When selling your business on the open market you can expect a proportion of the sale proceeds on day one, and any earn-out can be negotiated to maximise your position however, this needs to be weighed against a capital gains tax liability.

If your sector and business model commands higher-than-average valuations, the uplift could offset your tax bill.


On the downside, selling to a third party is an adversarial process involving managed exposure to competitors. If businesses in your sector are only attracting average valuations, the tax advantages and simplicity of selling to an Employee Ownership Trust could prove advantageous from the outset.


Some owners try selling on the open market first and if deal structures, and tax implications prove unattractive decide to sell to their employees instead.


Release your equity tax free over time

Employee Ownership Trusts (EOT’s) can deliver a tax-free and ethical way to release your hard-earned equity. Alongside selling on the open market, EOT’s are becoming increasingly popular achieving 21% average growth year on year since 2018.


EOT’s are highly flexible, as you can start to release your equity now, and continue serving as a trustee, director, or employee, allowing you time to strengthen your management team, ensuring your employees are left with a strong and thriving business.


Negatives include waiting longer for your money and more risk, as deferred consideration is tied to the business moving forwards. For many the ethical positives, outweigh the negatives, as your company’s unique culture and values are preserved as a legacy. Employees qualify for a £3,600 tax free bonus and are more likely to retain their jobs when compared to a merger with another company. Studies have shown that employee-owned businesses are 7% more efficient and productive as employees transition from spectators to participators.


Employee ownership trusts allow you to dictate the terms of the transaction to suit your situation. You still get all the benefits of having sold your business and more, including getting your time back, but you also get to ensure your business is heading in the right direction before saying goodbye completely.


Employee ownership trusts particularly suit companies with strong future cash-flow which, is used to fund the acquisition. In addition to significant tax savings, departing shareholders can charge interest on any outstanding consideration and leverage a bonus payment through warrant options.


Management buyout or buy-in

For some, a management buyout can be attractive, especially where some shareholders wish to remain with the business, making it easier to secure funding.


An MBO suits businesses with strong cashflow, which is needed to fund an exit. Managers remaining with the business are more often than not required to contribute some personal funds alongside participating investors.


When considering an MBO, it’s important to ascertain if your business and management team is able to finance an MBO before you reveal your proposal. This safeguards key relationships with your management team should an MBO prove unviable. Your management team must also be strong enough to continue running the business following your departure.


It's worth remembering that departing shareholders are faced with a Capital Gains Tax liability and acquiring managers who aren't already shareholders may struggle with funding, especially in asset light businesses. In these cases an EOT, or sale on the open market may be better options for you and your business.


Call us on 01384 274 778 / 075 888 925 88 to discuss or go ahead and book a free consultation to discuss your options.



Recent Posts

See All

Hozzászólások


bottom of page