It’s disappointing when a family member says they don’t want to take over the family business. But your business legacy isn’t necessarily over – as long as you’re practical about it.
Here’s what you can do with your business if you want to retire but don’t have a successor lined up.
Ownership versus management
A lot of the time, a family member doesn’t want to take responsibility for the family business because they have a career of their own.
If that sounds familiar, you need to make sure they know the difference between ownership and management – owning a business means holding the majority of company shares. However, you can still put a management team in place to run the business from a day-to-day perspective.
The challenge with this route is ensuring the correct management team is put in place – not only will the right one understand the ownership structure, but they’ll be committed to the business and its long-term success.
Above all else, they’ll work in your successor’s best interests and communicate clearly.
Selling the family business
What can you do if your successor isn’t even interested in a hands-off approach to business ownership? In this case, some form of sale will be the natural option.
Business sales can take many forms, including mergers, consolidation, share swaps and recapitalisations. However, the two main options to consider are asset sales and share sales.
Owners of sole trader businesses and limited companies can do both and it involves selling the assets, name and goodwill of the business.
When you do this, you may have to pay capital gains tax if you sell certain assets, including:
- land and buildings
- fixtures and fittings
- plant and machinery
- registered trademarks.
Depending on your income and the capital gain you make, you will either pay 10% or 20% capital gains tax. However, if you’re a sole trader or business partner and have owned the business for at least two years, you can ensure you pay 10% by claiming business asset disposal relief.
Limited companies have the option to sell shares or securities, which are also liable to capital gains tax. However, you’ll also be able to claim business asset disposal relief if:
- you’re an employee or office holder of the company
- the company’s main activities are in trading (rather than non-trading activities, like investment), or is the holding company of a trading group.
Employee ownership
Another route you could take is employee ownership, which was introduced by legislation in 2014, and it’s increasingly common to see businesses move toward this model.
The key advantages include receiving full value for the business while the transaction can be concluded quicker and easier. Meanwhile, your legacy will likely stay on, as family behaviour and values are more likely to continue under employee ownership.
Under the employee ownership model, there are some fairly unusual but beneficial tax advantages – if structured correctly, you can get a 100% exemption on capital gains tax.
As you can see, there are options available to you if your family does not want to take over the business once you retire. Get in touch with us to discuss your options in more detail.