February 5, 2024

Case Study: Corporate Structure On Sale Of Business


I want to share with you a recent case study involving a family-owned business. They are preparing to sell their trade to a third-party purchaser and I thought this case is a good opportunity to delve into the complexities and considerations surrounding such transactions…

A Case Study

We are currently acting for a family-owned business, who will be selling their trade to a third party purchaser.

In such circumstances, advice must be sought. Not only for tax purposes although it does play a major role from multiple angles, two being: 1) ensuring maximum proceeds and 2) minimising tax leakage.

A better way to put it perhaps would be 'optimising' tax savings.

One particular angle we had to consider was around the corporate structure and its suitability.

Generally speaking, this is important if not all of the business or group will be sold at once to a single buyer, or if the owner intends to retain certain assets (such as property) post-sale. This is the challenge that was presented to us.

It is particularly common to find that some restructuring is necessary before a sale. For example, here there was a need to demerge and extract 'personal' assets that the owner wished to retain.

In other circumstances, potential buyers are not interested in certain assets or other 'sister' businesses/companies.

There are typically more options available for such restructuring when it's planned well in advance of a proposed sale. Timing and tax considerations can significantly limit what can be achieved once the sale process is already underway.

For example, a complete demerger (once everything has been taken into account) can take up to four months to complete, although we always try to push through sooner.

The owner's personal goals also influence the optimal sale structure. Some owners may want to use their sale proceeds for personal purposes, while others may prefer to reinvest in their next venture. This decision greatly affects determining the best sale structure while minimizing tax liabilities.

These discussions are always had from the outset, usually even before engaging with a client. Everything should be clear in terms of exactly what we are trying to achieve.

Reverting back to the case we are looking at, it is about time to finish up the demerging process. Multiple clearances have been obtained and our lawyers are now drafting up the paperwork. Discussions have begun around the 'main event' - which is the sale of trade.

In conclusion, it is strongly advisable to consider tax implications as early as possible when contemplating selling part or all of a business. Proper planning and preparation can streamline the eventual sale process, reduce stress (and potentially save on fees), ensure you receive your sale proceeds optimally, and minimise the risk of tax liabilities eating into your proceeds.

A great win for all!

If you would like our involvement in undertaking and advising on such transactions for your clients, please email: omar@aswatax.co.uk.

I ensure to keep communications fluid and fluent. I know business owners prefer least hassle and disruption so we work as quickly and efficiently as possible.

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