exit strategies
TRANSCRIPT
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Successful Exits
CATHERINE GANNONSolicitor, Chartered Tax Adviser
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PROCESS
RAISING CASHPRE SALE – how?
SALE – how to max value
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EXPANSION
QUESTION:
IF YOU WERE GOING TO EXPAND YOUR BUSINESS HOW WOULD YOU GO ABOUT IT?
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RAISING CASH 3 key consideration
• Value of business• How much to give away• Retaining control
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RAISING CASH Valuation
• Art vs. science• Check one method against another• Different methods:
- Discounted cash flow- Market multiple- Dividend yield- Net asset
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EXPANSION Retaining control
• Minimal veto rights• Resolutions• Drag along rights• Transfer restrictions• Information rights
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Employee engagement
• Out performance• EMI
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RAISING CASHWhat investors look for
• Shareholder protection• Due diligence• SEIS and EIS relief
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Raising cash
HELEN CURTISSpecialist solicitor for equity fund
raising
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What we will cover
What is the thinking behind SEIS and EIS Summary of hurdles Tripwires
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SEIS
• Hard for Companies to get funding from Banks• Low interest rates on savings• SOLUTION? SEIS and EIS
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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
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SEIS
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• 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
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• 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
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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)
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What if it doesn’t work out?
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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
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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
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Legal Considerations
• Legal Considerations• Don’t jeopardise future investment• Drag Along• Minority Protections e.g. Tag along, pre-emption
rights, voting thresholds
• al Consideration
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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
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EIS Tax Benefits
• 30% Income tax relief immediately• No CGT• Loss Relief to amount of loss set against income
tax
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SALEHOW TO GO ABOUT THIS
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SALE
• Shares or Sale of Assets?• Heads of Agreement• Indemnities• Tax
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SALEPreparation
• Suppliers and customers• Employees and directors• Run your own due diligence • Do you want a checklist?
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SALE Agreeing the price
• Historical data• Price earnings multiples• Recurring fee income• Why do they want you?
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SALE Shares or Assets?
• Share Sale• Asset Sale
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SALE Heads of agreement
• Not legally binding• Exclusivity period• Important discussion areas:
- restrictive covenants- timing of consideration
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Sale Usual terms
• When will you be paid• Cash or shares or both• On-going responsibilities• Claw backs
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SALE Warranties
• Principle of Caveat Emptor• Disclosure letter• Contractual statements
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Sale Intellectual Property
• Due Diligence• Evaluation• Purchase agreement warranties
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How much will you be left with?
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QUESTION
HAS ANYONE HERE CLAIMED ENTREPRENEURS RELIEF?
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WHAT IS ER
• Applies to first £10m of gains• CGT charged at 10%
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ER HOW COOL IS THAT
• Business sold for£886,000
• Tax under ER @ 10%£86,410
Walk away with £789,590
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ER BASIC REQUIREMENTS
• 1 year• 5%• Employee or officer – no minimum hours
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How can we help you?Visit www.gannons.co.uk for further
informationhttp://twitter.com/#!/gannons_law