Future Fund – access to growth capital for high growth companies
The Coronavirus pandemic has seen a reduction in the usual funding streams for some businesses and has forced the Government to think creatively about how they can support promising, infant companies. The result is the new Future Fund.
What is the Future Fund?
On the 20th May 2020 the Government launched another Coronavirus short term rescue package to support business. The Future Fund is aimed at helping pre-revenue or pre-profit companies that were struggling to qualify for other Government rescue packages.
Bermans has made two appointments to its Corporate team. The team, led by Jon Davage, welcomed Barney Leafas a partner and Simon Nolan as a Solicitor from Laytons LLP.
Barney has over 20 years of corporate law experience and acts for international and domestic businesses in many sectors ranging from retail, online, law firms, insurance, finance and investment funds.
Joining Barney from Laytons will be his assistant solicitor, Simon Nolan. Simon will undertake the variety of corporate instructions that are generated by the varied portfolio of clients that Bermans acts for.
The Manchester corporate team at Bermans advised Nottingham-headquartered engineering business through its acquisition by US owned Brennan Industries Inc.
Locking in your key employees is always a balancing act between work life balance, remuneration packages and showing employees they are valued and part of the very fabric of the organisation.
One of the most effective ways of imbedding employees into your business is through capital ownership, which provides a shared goal towards exit and increasing value.
This is a powerful way to tell a key employee of their value to the business and can create an “in this together” attitude.
Such a structure creates rewards for all on a fair basis through the eventual sale of the business.
One of the most popular types of employee share option schemes with SMEs is enterprise management incentives (‘EMI’).
EMI schemes are a popular way of attracting and retaining employees and they can provide significant tax benefits.
What do Riverford, the organic vegetable box company, Richer Sounds, the hi-fi chain and Turleys, the planning consultancy have in common? Well, as from May 2019, they are or are about to become employee owned businesses with Julian Richer being the latest business owner to announce he is transferring 60% of his shareholding into an Employee Ownership Trust (EOT).
If you are a business owner, in business with one or more partners, have you taken time to consider what might happen to the business if you, or one of them, were suddenly not around or capable of taking part?
Traditionally, the most common way to pass down family wealth has been by way of discretionary trust structures. However, recent changes to the tax regime now mean that family investment companies (FICs) could offer more favourable tax treatments when deciding how to deal with future generations – particularly for individuals with large inheritance tax (IHT) estates.
An employee ownership trust (EOT) is a trust established for the benefit of the employees of a business. Selling a majority stake in your company to an EOT will mean that your employees will have an indirect interest in the business, potentially leading to increased performance and commitment, as well as a number of additional benefits:
A disposal of a majority shareholding in a company to an EOT will generally be free of capital gains tax, income tax and inheritance tax.
Bonus payments of up to £3,600 per year can be made to employees of the business, tax-free.
Full market value for the shares can be realised by the selling shareholders.
The shareholders do not have to sell all of their shares, so can continue to have a stake in the business, and can remain as directors of the company post-sale.
In order to sell shares to an EOT and realise the benefits outlined above, a company (which must be a trading company or a holding company of a trading company) will usually be incorporated to act as the trustee of the EOT. The relevant company and the EOT trustee will enter into a trust deed, under which the property held by the EOT trustee, such as the shares in the company, are held for the benefit of the company’s employees.
The company’s shareholders will then agree to sell more than 50% of the shares in the company to the EOT Trustee. Depending on how the transaction will be funded, the purchase price may be left payable on deferred terms so as to allow the dividends received by the EOT trustee from the trading company to be used to pay the purchase price.
What is required to qualify?
In addition to the requirement that the relevant company must be a trading company, there are certain additional requirements which must be met in order for the transaction to qualify for the tax treatment benefits:
The “all-employee benefit” requirement. The terms of the trust must not permit the trust property to be applied other than for the benefit of all the business’ employees, to transfer the property to another trust, or to make loans to the trust beneficiaries.
The “equality” requirement. Any distribution from the trust fund, or payment under a bonus scheme, must be for the benefit of all eligible employees, on the same terms.
The “controlling interest” requirement. The EOT trustee must hold at least 50% of the ordinary share capital, voting rights, profit entitlement and entitlement to assets on a winding-up.
What are the benefits?
You will appreciate this tax-efficient structure provides another exit opportunity to management alongside trade sale, traditional MBOs (VIMBOs, MBIs, etc.), listings and asset sales. This allows management partially to de-risk their investment and unlocks tax-free capital to invest elsewhere.
Bearing in mind the succession issues experienced by owner-managers since the financial crisis of 2008, this structure is well worth considering as part of clients’ financial planning.
This structure is also well suited to professional service firms where ownership and capital value may be barred due to the high cost of buy-in. Using this method would incentivise and tie in valuable members of teams and ensure a fruitful final exit for management and employees
How can we help?
If you would like to discuss the benefits of implementing an EOT structure, we would be happy to discuss it further with you. Bermans can assist in all aspects of the transaction, including:
Setting up the company to act as the trustee of the EOT.
Preparing the trust deed between the company and the EOT trustee, detailing the terms on which the company’s shares will be held for the benefit of the employees.
Preparing the constitutional documents of both the company and the EOT trustee.
Drafting and advising on the share purchase agreement relating to the sale of the shares to the EOT trustee.
Advising on any documents or structures relating to the funding of the transaction.
A share buyback (a process whereby shares in a company are bought by the company itself and cancelled) is a popular and relatively less-complex way for companies to provide an exit route for, or return surplus cash to, its shareholders. Whilst the law and procedure for carrying out a share buyback is quite clear and straightforward, we have dealt with a number of instances where the validity of a share buyback has been questioned and further action required to be taken in order to ratify the validity of a buyback transaction.
In this article, Jon Davage outlines some pointers for those seeking acquisition opportunities via an insolvency process.
The folding of a company may be catastrophic for the stakeholders of the relevant company, but insolvencies provide buyers with the ability to acquire assets and valuable customer contracts at reduced prices. However, acquisitions of this type are not without their perils and often have hidden costs. Here are some issues to consider before you embark on this type of deal.
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Locking in your key employees is always a balancing act between work life balance, remuneration packages and showing employees they are valued and part of the very fabric of the organisation.
What do Riverford, the organic vegetable box company, Richer Sounds, the hi-fi chain and Turleys, the planning consultancy have in common? Well, as from May 2019, they are or are about to become employee owned businesses with Julian Richer being the latest business owner to announce he is transferring 60% of his shareholding into an Employee Ownership Trust (EOT).