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Recent changes to the CGT and ER rules are likely to require a rethink on structuring earn-out deals, says PETER RAYNEY
KEY POINTS
- Impact of Marren v Ingles [1980] STC 500.
- The effect of the automatic s 138A deferral rule.
- The possible benefits of cash-based earn-outs.
- Maximising entrepreneurs’ relief.
- Importance of preparation.
In the current economic climate earn-outs fulfil a useful function by reconciling the so-called ‘price gap’ that often exists between a seller and purchaser. Many sellers believe that they are selling their business ahead of its maximum profit potential.
Consequently they will want to negotiate a price for the business that reflects its future earnings potential. On the other hand most prudent purchasers will only be willing to agree a deal based on future (increased) profits when they are actually delivered by the business.
Thus by incorporating an...
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