Owner-managed businesses often face a conundrum when looking ahead to retirement, especially around how to release any value that is held within the business.
Some may be family businesses, where the second or even third generation will take over the reins and the founder will be able to step aside. However, for owners who do not have a viable succession plan or do not wish to hand over the reins, there will be a need to close the business down.
With proper advice and planning, owner-managed businesses can navigate this path, secure a return on their investment in the company and obtain comfort that the closure has been dealt with efficiently and properly.
Selling the assets
In circumstances such as these, a sale of the trade and assets of the company may be possible which generates cash into the company, in which case our Corporate Finance team can assist with the process. However, once the sale has been completed, what is the best thing to do with the shell of the business and how is it best to distribute the sale proceeds (likely to be cash) back to the shareholders?
Returning the cash to shareholders
One option is to distribute this as dividends over a number of years. The disadvantage of this is that it may not be the most efficient means of dealing with the matter plus there will be the ongoing administrative requirements to deal with, such as filing necessary returns with both HMRC and Companies House.
The alternative solution is a Members Voluntary Liquidation (MVL). An MVL is a liquidation of a solvent company that is administered by a Licensed Insolvency Practitioner.
Whereas the first option treats the distribution as income, the benefit of the MVL is that any distributions to members are treated as capital distributions and subject to Capital Gains Tax. It may also be possible that Business Asset Disposal Relief (formerly known as Entrepreneurs’ Relief) is available.
Managed wind-down and exit
Ultimately, the MVL process will provide comfort to the shareholders that the company has been wound up properly, with the various clearances been sought by the Liquidator. Once the final report has been issued, the company will be eventually dissolved at Companies House.
If you are considering how to exit from your business and would like to discuss the process in further detail please contact Daryl Warwick on 01228 690187 or email daryl.warwick@armstrongwatson.co.uk.
