The mechanics of a management buy-out

Chris Brown - Brown & Co

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 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 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.

Enjoyed this? Read more from Chris Brown, Brown & Co

Latest news

1

College restaurant honoured with top culinary award from prestigious chefs’ guild Karen Lilley Front Of House Lecturer David McKown David Lyon Scholars Manager And Blackburn College Principal Dr Fazal Dad

College restaurant honoured with top culinary award from prestigious chefs’ guild

10 Jun 2025

2

Cosmetic manufacturer lets new unit on Frontier Park, Burnley Badgequo have agreed to let the site on Frontier Park

Cosmetic manufacturer lets new unit on Frontier Park, Burnley

10 Jun 2025

3

SQ Digital celebrates 25 years and enters new era with CEO appointment Kamal Essa

SQ Digital celebrates 25 years and enters new era with CEO appointment

09 Jun 2025

4

New chair appointed to Atlas BFW Management Graham Cowley

New chair appointed to Atlas BFW Management

09 Jun 2025

5

Napthens makes key appointments to further growth strategy of newly appointed managing director Napthens appointments Jayna Mistry, Onyeka-Obedi and Rebecca Rhodes

Napthens makes key appointments to further growth strategy of newly appointed managing director

09 Jun 2025

Background image for hub sign up block

LBV Hub

Leverage Lancashire Business View platforms

Post your news
Post your events
Post your offers
Build your network
Improve your SEO
Gain coverage in the magazine
Sign-up
Events
Sub36 Networking
Sub36 Social1200pxandi Lewis
Networking
11 Jun 2025

Sub36 Networking

Mytton Fold Hotel , Blackburn , BB6 8AB

09:30 - 11:00

Lancashire Net Zero Carbon Conference
Net Zero Carbon Social 1200pxtrident 2
Networking
18 Jun 2025

Lancashire Net Zero Carbon Conference

Crow Wood Hotel & Spa Resort, Burnley, BB12 0RT

08:30 - 13:00

LBV123 July/August Launch Event
Lancashire Business View magazine launch
Networking
16 Jul 2025

LBV123 July/August Launch Event

Burnley College Industry Hub, Burnley, BB120AN

08:30 - 10:30

Lancashire Built Environment Conference 2025
BEC 315 X 315 Px
Networking
25 Sep 2025

Lancashire Built Environment Conference 2025

Blackpool Football Club, Blackpool, FY1 6HX

08:30 - 13:00

CMI Level 5 Management and Leadership Course
UCLanAerialCampus.jpg.jpg
LBV Hub Seminars
21 Feb 2025 - 21 Feb 2026

CMI Level 5 Management and Leadership Course

Preston Campus, Preston , PR1 2HE

09:00 - 17:00

CMI Level 5 Project Management Course
UCLanAerialCampus.jpg.jpg
LBV Hub Seminars
21 Feb 2025 - 21 Feb 2026

CMI Level 5 Project Management Course

Preston Campus, Preston, PR1 2HE

08:00 - 17:00

RISE - The Academy for Female Leaders and Managers
WENDY BOWERS RISE Illustrstion copy.jpg.jpg
LBV Hub Seminars
02 Apr 2025 - 08 Oct 2025

RISE - The Academy for Female Leaders and Managers

East Lancashire Chamber of Commerce, Clayton le Moors, BB5 5JR

09:00 - 15:30

Preston Freelancer Meet-Up
LBV Hub Networking
12 Jun 2025 - 12 Jun 2025

Preston Freelancer Meet-Up

Society1, Coworking Space, Preston, PR1 3LT

10:00 - 11:30

The Business Network Central & East Lancashire
LBV Hub Networking
12 Jun 2025 - 12 Jun 2025

The Business Network Central & East Lancashire

Stanley House, Blackburn, BB2 7NP

11:30 - 14:15

Midnight Oil: The Entrepreneur’s Journey: Scaling Strategies with Brad Waldron
BU-June-Event-BRAD-1.jpg.jpg
LBV Hub Networking
18 Jun 2025 - 18 Jun 2025

Midnight Oil: The Entrepreneur’s Journey: Scaling Strategies with Brad Waldron

Blackpool Football Club, Bloomfield Rd, Seasiders Way, Blackpool, FY1 6JJ

08:30 - 11:30

Chamber Business Lunch – June
Chamber Logo1.png.png
LBV Hub Networking
20 Jun 2025 - 20 Jun 2025

Chamber Business Lunch – June

Lancaster House Hotel, Bailrigg, Lancaster, LA1 4GL

11:00 - 13:30

90 day Business Planning Workshop
LBV Event Header.png.png
LBV Hub Seminars
20 Jun 2025 - 20 Jun 2025

90 day Business Planning Workshop

Bolton Arena, Arena Approach, Horwich, BL6 6LB

09:00 - 16:30

Advertise with us

Reaching 50,000 members, our print, digital and event platforms offer a fantastic way to raise your business profile and help you grow.

Find out more LBV122 Online Graphic
Subscribe now

Weekly news bulletin