While the exhilarating journey of owning and managing your own business and being the master of your destiny may have brought you immense joy, there comes a time when retirement beckons.
As you prepare to take a step back, it is crucial to carefully weigh the best path forward for both yourself and your business.
In this informative piece in our esteemed corporate and commercial team, presents a comprehensive overview of the key considerations that business leaders should bear in mind when approaching retirement.
Moreover, she delves into the array of options available, shedding light on the potential avenues to explore during this pivotal transition
Planning your retirement from your business
One crucial factor that greatly influences the range of possibilities at retirement is the structure of your business. For instance, limited companies enjoy a significantly broader spectrum of options compared to sole traders or general partnerships. To provide you with a glimpse of what lies ahead, here is a concise outline of the available choices to consider:
- Acquisition or Merger Opportunities: A carefully orchestrated acquisition or merger can offer an ideal pathway to retirement. By combining forces with a like-minded company or passing the torch to a capable successor, you can ensure the continued growth and success of your business.
- Management Buyouts: Entrusting your business to a talented and dedicated management team can be a viable option. Through a management buyout, you can foster continuity while securing your financial future and the prosperity of your enterprise.
- Employee Ownership: Transitioning your business into an employee-owned entity can be a fulfilling choice that rewards the very individuals who have contributed to its success. This transition empowers your employees, nurtures a sense of loyalty, and paves the way for a seamless handover.
- Selling the Business: For those seeking a clean break, selling the business to an interested buyer can be an attractive solution. This option allows you to extract the value you have built over the years and embark on a well-deserved retirement, knowing your business will continue under new stewardship.
- Succession Planning: Developing a robust succession plan is essential to ensure a smooth and efficient transition. By identifying and grooming a suitable successor or successors, you can pass on the reins with confidence, safeguarding the legacy you have worked so hard to build.
As you reflect on these options, it is vital to consult with experienced professionals who can guide you through the complexities and nuances of each path. Remember, retirement marks the culmination of a remarkable entrepreneurial journey, and by exploring the right options, you can ensure a legacy of success for your business while embarking on an exciting new chapter in your life.
Type of structure do you operate?
The type of structure your business operates in has a major impact on how you can sell or dispose of your venture.
Sole traders and general partnerships
For businesses operating as sole traders or general partnerships, it is important to understand that there is no legal distinction between the business and the individual sole traders or partners. In other words, the business and its assets are considered one and the same as the individuals who own them.
If you are contemplating retirement as a sole trader or from a general partnership, one viable option to consider is selling the business. In this case, the sale would take the form of an ‘asset sale,’ where the individual/s would sell all the assets, both tangible and intangible, along with the goodwill of the business as a going concern. The buyer would then take over the business operations after the purchase.
It is worth noting that if the business assets include leasehold premises, the transfer of these premises to the buyer would require an assignment, typically subject to the landlord’s consent.
In situations where such businesses have employees, it is crucial to be aware of their rights under the Transfer of Undertakings (Protection of Employment) Regulations 2006, commonly referred to as the ‘TUPE regulations.’ These regulations ensure that employees have the right to continue their employment following the business purchase. Their employment contracts would automatically transfer to the buyer on their existing terms, with a few exceptions such as old age, invalidity, and survivors’ benefits under occupational pension schemes. Effectively, the buyer assumes the role of the seller and takes on the responsibilities associated with the employees.
As you navigate the path to retirement, it is highly recommended to seek professional guidance to ensure a smooth transition. Experts in the field can provide invaluable advice and assistance tailored to your specific circumstances, ensuring compliance with legal requirements and safeguarding the interests of all parties involved.
Remember, retirement signifies a new chapter in your life, and by exploring the appropriate options and seeking expert support, you can embark on this exciting journey with confidence and peace of mind.
Retiring from running a limited company
In stark contrast to sole traders and general partnerships, a limited company enjoys a distinct legal personality that is separate from its owners. This legal separation empowers the company to possess assets in its own right and engage in contracts independently. Typically, most businesses operate as ‘limited by shares,’ meaning they are owned by one or more shareholders.
If you are a limited company owner or a key shareholder considering retirement, you have a broader range of options when it comes to selling your business. While the previously mentioned ‘asset sale’ method remains available (where the company sells its assets and goodwill to a buyer while the ownership of shares in the company remains unchanged), there is an additional avenue to explore: selling the shares in the company to the buyer.
In this scenario, all assets continue to be owned by the limited company, but a new owner emerges – the buyer who becomes the proprietor of the shares. This approach offers a unique opportunity for a seamless transition of ownership while keeping the assets within the framework of the established limited company.
As you contemplate your retirement plans, it is crucial to seek professional guidance to navigate the complexities of these options effectively. Skilled advisors can assist you in executing the most suitable strategy, taking into account your specific circumstances and aspirations.
Remember, as the owner of a limited company, your retirement marks an important milestone in your entrepreneurial journey. By exploring the expanded array of possibilities available to you, you can embrace this new chapter with confidence, ensuring the continued prosperity of your business under new ownership while embarking on your well-deserved retirement.
What if selling is not an option?
In certain instances, selling your business to a third party may not be a viable or appealing option. Perhaps no suitable buyer has emerged, or the idea of entrusting your beloved enterprise to someone else as you retire simply doesn’t resonate with you. In such cases, you may come to the conclusion that the business has reached its natural end, and it is time to gracefully close its doors, especially if there are no employees involved.
If you choose to cease trading and wind down the business, the assets can be sold separately, independent of any ongoing business operations. These assets can be acquired by one or more different buyers, allowing you to extract value from your business while bringing a definitive close to its operations.
In situations where selling your business is not a viable option, but there are significant assets and cash reserves within the company, you may consider pursuing a members voluntary liquidation. This process allows for the orderly winding up of the business, maximizing the value of the assets and distributing the proceeds among the shareholders.
By opting for a members voluntary liquidation, you can ensure a controlled and structured exit strategy while maximizing the return on investment for the shareholders. Engaging with professionals specializing in liquidation procedures will provide the necessary guidance to navigate the legal and financial aspects of the process, ensuring compliance with regulatory requirements and optimizing the distribution of assets.
This alternative approach can offer a viable solution for business owners seeking to extract value from their company when selling the business is not feasible.
It is crucial to emphasize that if your business has employees, seeking specialist advice becomes imperative to ensure the proper handling of any related employment matters. Addressing these concerns with care and diligence will help safeguard the rights and interests of your employees during the closure process.
During this important phase, consulting with professionals experienced in business closures will provide invaluable guidance to navigate the intricacies and legal requirements involved. Their expertise will help ensure a smooth and lawful transition, addressing any potential challenges and minimising any potential impact on your employees.
Who can I sell my shares to when I plan to retire
Before proceeding with the sale of your shares in a limited company, it is essential to ensure that no restrictions exist governing the conditions under which your shares can be sold. These restrictions can manifest in various forms, such as provisions in the company’s articles of association or a shareholders’ agreement with other shareholders, if applicable.
Once you have confirmed that there are no hindrances in place, or if such restrictions can be removed, a range of parties may express interest in purchasing your company shares.
Here are a few examples:
- Third Parties: This category encompasses a diverse range of potential buyers, including new startups, competitors, and existing companies seeking entry into your market. However, it’s important to note that third parties typically seek to acquire 100% of the shares in a company. Therefore, if you are not the sole shareholder, it is crucial to ensure that other shareholders are also willing to sell simultaneously.
- Members of Staff: The prospect of a management buyout, where members of your staff acquire the shares, can be an attractive option. This choice not only ensures business continuity but also fosters confidence in the ongoing success of the company. It may be preferable to maintain the business within the trusted hands of those who are intimately familiar with its operations.
- Other Shareholders: If you are not the sole shareholder, existing shareholders within the company may express interest in acquiring your shares. This option provides an opportunity for internal restructuring and consolidation of ownership, fostering a sense of unity among current shareholders.
Considering the unique circumstances surrounding your business, selling to a competitor may not align with your preferences or objectives. In such cases, exploring alternative options can help you find a buyer that better aligns with your vision for the future.
As you navigate the intricate process of selling your shares, it is highly advisable to seek expert advice to ensure a seamless transaction. Professionals well-versed in the nuances of share sales can guide you through the legal and logistical aspects, facilitating a successful outcome
Like to retire and sell my shares to the other shareholders, but funding may be an issue?
In situations where a company has other shareholders but they are unable or unwilling to purchase your shares, an alternative option to consider is a ‘share buyback’ from the company itself. This approach presents an opportunity for a smooth transition as you retire and sell your shares.
In a share buyback, the company repurchases your shares, provided it possesses sufficient distributable profits to cover the sale/purchase price of the shares. In exceptional circumstances where distributable profits are not available, alternative arrangements may be considered. Once the shares are bought back, they are immediately cancelled, resulting in the remaining shareholders owning the entire company without needing to acquire additional shares themselves.
To illustrate this process, let’s consider an example with a company that has a share capital of 100 shares and three shareholders. Suppose you own 80 shares, while the other two shareholders each own 10 shares. The following four steps outline the procedure:
- You sell your 80 shares to the company at the agreed sale/purchase price and retire.
- The company promptly cancels the repurchased shares.
- As a result, the share capital of the company is reduced to 20 shares.
- The remaining two shareholders retain their 10 shares each, which now represent the entire 100% of the company’s share capital.
By engaging in a share buyback, the company can effectively streamline its ownership structure, with the remaining shareholders assuming full control without the need for external share purchases. This approach ensures a seamless transition and facilitates business continuity under the consolidated ownership.
As you embark on this strategic decision, it is crucial to seek professional advice from experts well-versed in share buyback transactions. Their guidance will assist in navigating the legal and financial aspects involved, ensuring compliance with regulatory requirements and maximizing the benefits of the process.
Remember, the share buyback option presents a strategic pathway to retire while maintaining the integrity and stability of the company. By leveraging this approach, you can transition with confidence, knowing that the remaining shareholders will continue to drive the company forward.
Plan early to ensure your retirement meets your vision for the future
Retirement marks a significant milestone in the entrepreneurial journey, and it is crucial to carefully contemplate the various options available to you well in advance. By proactively considering alternatives and planning your exit strategy, you can navigate the transition with confidence and set the stage for a fulfilling retirement.
As you embark on this journey, it is important to develop a comprehensive strategy that takes into account several key factors. Start by reflecting on the following considerations:
- Retirement Timing: Determine when you envision retiring from your business. Assessing your desired retirement age and considering factors such as financial stability, personal goals, and market conditions will help you establish a realistic timeline for your transition.
- Retirement Income: Take stock of your financial requirements in retirement. Evaluate the income you will need to sustain your desired lifestyle and meet your financial obligations. This assessment will help guide your decision-making process and shape your retirement strategy.
- Transition Plan: Consider whether you require someone to take over the business upon your retirement or if selling the business is the preferred option. This decision will depend on various factors such as your personal aspirations, the feasibility of finding a suitable successor, and the potential value of your business.
By pondering these factors, you can gain clarity on the path ahead. Understanding whether a smooth transition of ownership or a sale is the optimal route will guide your decision-making process and help shape your retirement strategy.
To ascertain the potential value of your business, it is advisable to engage professional assistance. Experts experienced in business valuation can assess the worth of your enterprise, considering factors such as assets, liabilities, market conditions, and future prospects. This evaluation will provide valuable insights into the potential proceeds from a sale, facilitating informed decision-making.
Conclusion
In conclusion, retirement options for business owners are varied and require careful consideration. Whether you are a sole trader, a partner in a general partnership, or an owner of a limited company, it is essential to evaluate the most suitable path for your retirement. Selling the business, engaging in a share buyback, or pursuing a members voluntary liquidation are all potential avenues to explore.
By planning your exit strategy well in advance and seeking professional advice, you can make informed decisions that align with your financial goals, personal aspirations, and the long-term success of your business.
Remember, each option has its own implications and considerations, and selecting the right approach requires careful assessment of your specific circumstances. With thoughtful planning, you can embark on a well-deserved retirement, confident in the choices you have made for both yourself and your business.
Call one of our team today to discuss your options or simply complete an online enquiry form.
With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.