Exit strategies

Successful Exits

CATHERINE GANNONSolicitor, Chartered Tax Adviser

PROCESS

RAISING CASHPRE SALE – how?

SALE – how to max value

EXPANSION

QUESTION:

IF YOU WERE GOING TO EXPAND YOUR BUSINESS HOW WOULD YOU GO ABOUT IT?

RAISING CASH 3 key consideration

• Value of business• How much to give away• Retaining control

RAISING CASH Valuation

• Art vs. science• Check one method against another• Different methods:

- Discounted cash flow- Market multiple- Dividend yield- Net asset

EXPANSION Retaining control

• Minimal veto rights• Resolutions• Drag along rights• Transfer restrictions• Information rights

Employee engagement

• Out performance• EMI

RAISING CASHWhat investors look for

• Shareholder protection• Due diligence• SEIS and EIS relief

Raising cash

HELEN CURTISSpecialist solicitor for equity fund

raising

What we will cover

What is the thinking behind SEIS and EIS Summary of hurdles Tripwires

SEIS

• Hard for Companies to get funding from Banks• Low interest rates on savings• SOLUTION? SEIS and EIS

SEIS Headline Benefits

• Invest up to £150,000• Individual up to £100,000• Income tax relief 50% • No CGT• Further income tax relief if Company fails

• it

SEIS

• Must be a company• Unquoted• Assets of less than £200,000 pre- SEIS• Must not be controlled by another company• Maximum SEIS £150,000• Qualifying Trade

SEISCompany Criteria

• Most property based trades don’t qualify• Lawyers, Accountants and Banks don’t qualify• Service based trades may qualify e.g. Financial

Advice• Up to 20% Excluded Activities OK

Qualifying Trade

Individual

• Not an associate (business partner, spouse, parent, grandparent)

• Siblings OK• UK tax payer• Not a reciprocal arrangement• Not an employee (directors OK for SEIS, angel

directors OK for EIS)

What if it doesn’t work out?

If the Company Fails

• If the Company fails investor can offset loss against income tax at whatever rate of tax you pay.

• E.g. Salary = £50,000; pay approximately £9,800 tax

• Initial Investment = £10,000• Initial SEIS relief = £5,000• Company fails = up to 45% relief set against tax

Trip Wires

• Make sure have a bank account• Beware benefits e.g. repayment of loan• Controlled by a Company• Not a Qualifying Trade• Associates• Hold shares for 3 year minimum

Legal Considerations

• Legal Considerations• Don’t jeopardise future investment• Drag Along• Minority Protections e.g. Tag along, pre-emption

rights, voting thresholds

• al Consideration

EIS Company Criteria

• Must be a company• Unquoted• Assets of less than £15,000,000 pre-EIS• Must not be controlled by another company• Maximum EIS per person £1,000,000• Total Venture Capital £5,000,000 p/a• Fewer than 250 employees

EIS Tax Benefits

• 30% Income tax relief immediately• No CGT• Loss Relief to amount of loss set against income

tax

SALEHOW TO GO ABOUT THIS

SALE

• Shares or Sale of Assets?• Heads of Agreement• Indemnities• Tax

SALEPreparation

• Suppliers and customers• Employees and directors• Run your own due diligence • Do you want a checklist?

SALE Agreeing the price

• Historical data• Price earnings multiples• Recurring fee income• Why do they want you?

SALE Shares or Assets?

• Share Sale• Asset Sale

SALE Heads of agreement

• Not legally binding• Exclusivity period• Important discussion areas:

- restrictive covenants- timing of consideration

Sale Usual terms

• When will you be paid• Cash or shares or both• On-going responsibilities• Claw backs

SALE Warranties

• Principle of Caveat Emptor• Disclosure letter• Contractual statements

Sale Intellectual Property

• Due Diligence• Evaluation• Purchase agreement warranties

How much will you be left with?

QUESTION

HAS ANYONE HERE CLAIMED ENTREPRENEURS RELIEF?

WHAT IS ER

• Applies to first £10m of gains• CGT charged at 10%

ER HOW COOL IS THAT

• Business sold for£886,000

• Tax under ER @ 10%£86,410

Walk away with £789,590

ER BASIC REQUIREMENTS

• 1 year• 5%• Employee or officer – no minimum hours

How can we help you?Visit www.gannons.co.uk for further

informationhttp://twitter.com/#!/gannons_law