Glossary

Angel Investor

Angel investor

Also known as a business angel or informal investor or angel funder. An individual who provides capital for an early stage or start-up business, usually in exchange for convertible debt or share ownership.

Demerging Property

Demerging Property

If you own a trading property within a company that you wish to sell, but you want to retain ownership of the property and perhaps rent it to the new business owner, it is possible to transfer the property to a separate company owned by you via a demerger, without paying tax at that point.

Deferred Payment

Deferred Payment

A payment structure whereby a proportion of the proceeds for the sale of your business is paid in future instalments.

Due Diligence

Due Diligence

An investigation of a business prior to signing a contract. It is the process through which a potential acquirer evaluates a target company or its assets for an acquisition. This type of investigation contributes significantly to informed decision making by enhancing the amount and quality of information available to decision makers.

Earn Out Payment

Earn Out Payment

Part of the purchase price is paid after the business is sold, based on the target company achieving certain financial goals.

Entrepreneurs Relief

Entrepreneurs Relief

In the UK, subject to certain qualifying criteria, if you sell your trading business you can claim Entrepreneurs’ Relief meaning that you only pay tax at an effective rate of 10% on your capital gain, compared to the normal rate of 18% or 28%.

Heads Of Terms

Heads of Terms

A document signed by two parties intending to enter into a formal contract. They set out the basis of the deal in broad terms, before a negotiated sale and purchase agreement is signed. It is the same as signing a letter of intent.

Information Memorandum

Information Memorandum

A document containing the key elements of information regarding a business, which is provided to prospective buyers.

Lifetime Cash Flow

Lifetime Cash Flow

When you sell your business, your main income stream usually ceases. Lifetime cash flow models your future costs, based on assumptions about the kind of life you want to lead in retirement, and compares that to your future income and the amount of capital expected to be received from the sale of your business.

Non-Disclosure Agreement

Non-Disclosure Agreement

Also known as a confidentiality agreement. It is a legal contract between at least two parties that outlines confidential material, knowledge, or information that the parties wish to share with one another for certain purposes, but wish to restrict access to. It is a contract through which the parties agree not to disclose information covered by the agreement.

Private Equity

Private Equity

Consists of equity securities and debt in operating companies that are not publicly traded on a stock exchange. A private equity investment will generally be made by a private equity firm, a venture capital firm or an angel investor.

Private Equity Houses

Private Equity Houses

Investment Management firms that make investments in the private equity of operating companies.

Sale and Purchase Agreement

Sale and Purchase Agreement

The agreement that finalises all terms and conditions in the buying or selling of a company as originally stipulated in the Heads of Terms. This document can either be for the buying or selling of shares, when it is known as a share purchase agreement, or the buying or selling of assets, when it is known as an asset purchase agreement.

Substantial Shareholding Exemption

Substantial Shareholding Investment

If you own a group of companies structured as a holding company with subsidiaries, you may be able to claim Substantial Shareholding Exemption on the sale of a subsidiary. Subject to certain qualifying criteria, the gain made on the sale of the subsidiary will not be taxable in the parent company.

Trade Buyer

Trade Buyer

A bidder who is in the same industry as the target. Trade buyers are by far the most common type of takeover bidder, because they can hope to gain from synergies, economies of scale or monopoly pricing power.

Venture Capital

Venture Capital

Financial capital provided to early-stage, high growth potential companies. The venture capital fund earns money by owning equity in the companies it invests in, which usually have a novel technology or business model in high technology industries, such as biotechnology and IT. Venture capital is a type of private equity.