Selling the family business

Selling a family business is a complex exercise, often including preparing the company for sale, tax planning, valuing and marketing the business, negotiating price and terms and performing due diligence before closing the transaction.

While many family business owners dream of passing ownership onto future generations, keeping a business within the family isn’t always a viable option and succession planning can be a challenging aspect of operating a family business.

SUCCESSION OR SALE?
It’s important to consider the process of transition and ownership. An owner must establish whether the business be sold to a third party or the next generation.

Providing there are members of the family who are ready and willing to assume ownership, then owners must decide whether to split the ownership whilst factoring in whether dividing the business equally is in its best interests.

In particular, should ownership be transferred based on relationship or proportionally to management responsibility? Is there going to be active involvement or passive shareholding?

Alternatively, there may be a scenario where an owner may have no choice but to pursue an exit rather than a succession, particularly if there is no ‘next-generation’ ready, and in this instance an owner will want to ensure he or she receives maximum value on sale of the business.

METHOD?
One method of sale is via management buyout, whereby the management team in the business are able to acquire ownership of the business for a smooth internal transaction.

Alternatively, an owner may wish to gift the business to family members – each of which give rise to various tax implications.

Before proceeding, a seller should determine an appropriate timeline, structure the sale thoughtfully and consider seeking advice in relation to the tax consequences when doing so.