There may come a time when you no longer want to be a director of a company. So why would this happen? Here is a list;
- Inherited company from family and no longer wish to run it.
- Other commitments
- Retirement
- Wish to start up a new company
- May want to use tax losses in a new company.
So how do you go about exiting the business?
#1. Business Sale
Selling the business is a very popular idea but the realisation value of the business is often much less than you expect. Reason is simply that you are too close to the business and see all the positives and not all the negatives. You do not attach a risk discount in quite the same way. Also you must remember that you have to factor out the amount you pay yourself. Finally the business may not have the same value once you, as the rain maker, supersalesperson or whatever, actually goes.
#2. Management Buy out
This is a good one as the management know the business and are often motivated to make it succeed. They might basically think you are doing a bad job and want you out! The only wrinkle with this is the buyout has to be funded and that can be tricky. Also, of course, it is not an option available to you if they just don’t want to do it.
#3. Management Buy in
This is rarer but in effect it is a sale to a management team brought in from outside. They are quasi investors and it is more of a purchase with the aim to exit it quite quickly.
#4. Listing on a Stock Market
Well, this option is a difficult one as the shares really only go up if the business has got lots of potential and not many people want to exit a business when there is lots of potential, right? Also there are lots of regulatory hurdles and extra reporting and general hassle for the directors to keep the shareholders happy. Any owner is usually “locked in” for a couple of years before he/she can sell the shares.
#5. Liquidation
Yes, you can liquidate a company if you want to exit the business. Liquidation is not just for insolvent businesses. Liquidation just means turning a company’s business and its assets into cash. The owner can call in an insolvency practitioner who will sell the assets and distribute the proceeds to the shareholders. This particular kind of liquidation is called a Members Voluntary Liquidation (MVL).
#6. Options if the company is insolvent:
If debts have piled up or aggressive creditors are threatening (or have already issued) legal actions against you, what are exit strategies available if you no longer want to continue running the company?
This is a very different ball game as any exit strategy you choose must maximise creditors’ interests and not the company’s. If you fail to do this, you can fall into ‘wrongful trading’ and if proven, directors can be made personally liable for any debt from the time the company became insolvent.
If you do still want the company to continue (and it’s a viable business) but you’re facing debt problems and legal actions, there are ways to turn it around; i.e. informal deals and CVAs
However, if the business is not viable and/or you no longer wish to run it, the options are:
- Pre-pack administration – the company can be sold to another company out of administration quickly, allowing the business to continue.
- Creditors Voluntary Liquidation (CVL) – assets are sold into cash and distributed to creditors. Note: directors can’t appoint liquidators, only creditors can. Directors must inform the board of shareholders who then inform creditors.
Images: ”EXIT STRATEGY red Rubber Stamp over a white background/ Shutterstock.com“
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