Cookie Policy Tax planning for management buyout teams

MBO – Management Team

Acquisition of a business, or part of a business from the current shareholders by  way of a Management Buyout  (MBO) is beset with tax pitfalls and these have become a larger issue since the introduction of ITEPA in 2003.

It is crucial that the MBO team seek tax advice on structuring and investment before reaching heads of terms with the vendor.  Because of a potential conflict of interest it is preferable for the MBO team to choose separate advisors to those instructed by the Vendor (normally their existing advisors / auditors).

Often it is possible to design a structure which not only protects the MBO team from unnecessary tax issues but also enhances the proposition for the vendors – see MBO Vendor Advisory.

The traditional method used by an MBO team in buying a business, in which they already work, would be to establish a new company which would then acquire either part of the business or the share capital from the vendors.

Care need to be taken to ensure that the MBO team are not seen to be receiving a benefit from the acquisition as a result of which a tax charge would arise on them at income tax rates.

Others areas on which advice is critical include:

  • Warranties and indemnities to be provided by the vendors, this would normally follow a review of the business (due diligence)
  • Tax relief on third party borrowings
  • Tax relief on the investment
  • Tax position on any ratchet / flowering shares
  • Structure of the business bearing in mind future planned activity and growth
  • Exit Strategy (a key consideration for all businesses which should be considered on establishment).

Please contact us if you would like to discuss this are in more detail.