Corporation Tax

Introduction to management buy-outs (MBO)

Produced by Tolley
  • 23 Mar 2022 10:50

The following Corporation Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Introduction to management buy-outs (MBO)
  • Basic structure of the MBO
  • Other structuring considerations ― funding for the transaction
  • Other structuring considerations ― stock stapling
  • Due diligence
  • Company taxation following the MBO

Introduction to management buy-outs (MBO)

Basic structure of the MBO

An MBO takes place when the management team, which typically includes directors and first tier management, enters into an agreement to purchase an existing business. The usual form of an MBO is either:

  1. the acquisition of the shares in the target company (Target) by a company newly incorporated by the management team to make the acquisition (Newco)

  2. the acquisition of the trade and assets of Target by Newco

  3. the transfer of Target’s trade to a subsidiary of Target (Target Subco) followed by Newco’s acquisition of Target Subco (known as a hive-down)

Other structuring considerations ― funding for the transaction

The management team will invest funds into the new structure, which will usually consist of a combination of share capital and loan financing (eg loan notes). By owning an equity stake in Newco, the management team have the incentive of benefiting from the capital growth of the company on future disposal of their shares. It may be possible that the transaction can be structured a way that the investors benefit from EIS relief. See the Enterprise investment scheme ― introduction guidance note for further details. The management team may also benefit from business asset disposal relief

Access this article and thousands of others like it
free for 7 days with a trial of TolleyGuidance.

There's no margin for error. Think Tax.
Think Tolley.

TolleyGuidance gives you direct access to critical, comprehensive and up-to-date tax information and expertise you can rely on.


Popular Articles

Income tax during administration

Liability of the personal representativesAfter a person’s death, the property of the deceased is vested in the personal representatives (PRs) to enable them to manage and distribute the estate in accordance with the Will or the terms of intestacy. See the Personal representatives guidance note.The

23 Mar 2022 10:52 | Produced by Tolley Read more Read more

Permanent establishment

IntroductionA company that is not resident in the UK will only be subject to UK corporation tax if it carries on a trade in the UK through a permanent establishment. Where it does so, it will be subject to UK corporation tax on all profits that are attributable to the UK permanent establishment.

14 Apr 2022 11:41 | Produced by Tolley in association with Anne Fairpo Read more Read more

Bare trusts ― income tax and CGT

This guidance note explains how trustees of bare trusts are treated for income tax and capital gains purposes. Although a bare trust is, in equity, a type of trust, for both income tax and capital gains tax purposes its existence is transparent. This means that no tax liability falls on the trustees

23 Mar 2022 10:40 | Produced by Tolley Read more Read more