Planning for a company sale to a third party
Many private companies put share options in place specifically to reward employees when there is a sale of the business to a third party.
Any owner wishing to sell their business is best advised to get their house in order well in advance of the sale process. Share option arrangements will only be a small part of this but they can be crucial, particularly if your loyal employees are hoping for a good outcome.
It’s worth checking the following:
- Are all your participant records up to date – including records of any leavers, options that have lapsed, or options that have vested or will become vested on a sale?
- If you have made awards under tax-advantaged schemes (e.g. Enterprise Management Incentives, Share Incentive Plan, Company Share Option Plan), have the plans and the awards been correctly registered on HMRC’s online ERS system?
- If you granted EMI options before 6 April 2014, do you have the paper schedule from HMRC confirming that the options were registered within the 92 day deadline?
- If you granted EMI options on or after 6 April 2014, do you have proof that the options were registered online through the HMRC ERS System within the 92 day deadline?
- If you have made grants outside the tax-advantaged schemes, have you registered these with HMRC to the extent required?
- If you agreed on a valuation in the Company’s shares before any share awards were made, do you have records of HMRC’s agreement to the valuation (for each award or grant that has been made)?
- If the Company had to apply to HMRC for an advance assurance before awarding any EMI options, is a copy of the correspondence available?
- Have all of your annual returns relating to share schemes been filed correctly with HMRC and on time?
- If relevant, do you have copies of any section 431 elections made by employees? (These should have been entered into within 14 days of the date that shares were acquired).
- Do you have full copies of the final share plan rules and / or option agreements?
- Has all documentation been correctly executed?
- Have you complied fully with any company law requirements (for example, regarding the authority of directors to allot shares, in particular for awards made other than to employees)?
It is very likely that this information will be requested by the buyer’s advisers as part of their due diligence enquiries.
As you start working towards a sale, it may be worth making additional equity-based awards to employees. Be aware, however, that once you enter into negotiations for a sale this can have an impact on the valuation of the company’s shares. Granting of EMI options may also become impossible as a sale approaches, as entering into Heads of Terms with a buyer may result in the loss of the Company’s independent status (this can also be a disqualifying event for existing EMI options).
If you need assistance getting your company shipshape for a sale, RM2 can help you with the process. Our administration team handles record keeping, returns and all elements of share plan administration and will be able to advise you fully on your compliance position. We can also assist with the sale process in connection with your share options and share awards, including helping with exercise procedures, and closing down plans following completion.
For more information, contact firstname.lastname@example.org or call us on 020 8949 5522.