Family run business with key non-family management

Business sector: Manufacturing

Turnover: £50m

Shareholder/business goals and challenges

  • Retain key management and incentivise them to grow family shareholders’ value
  • Avoid any dilution of existing family shareholders’ existing value in the company
  • No third party exit envisaged so needed to create liquidity in shares to ensure that management see value in their share interests

What we did and achieved

  • Implemented key management share plan
  • Managed dilution to family shareholders by creating a class of Growth Shares, enabling non-family management to share in a proportion of growth in company value and ring-fencing existing value for family shareholders
  • Growth Shares were non-voting and non-dividend bearing ensuring no loss of control and no impact on family shareholders’ dividend stream
  • Tie-in to business achieved as shares forfeit on ceasing employment
  • Business performance increased significantly
  • Created internal market facility to enable management to “cash-out” a proportion of growth in value on certain milestones
  • Purchase and tax costs to managers reduced to affordable level and with no tax cost to the business
  • Tax efficient returns to managers with tax at only 10% on growth in value

About the author

John Dormer Partner

John specialises in employee incentive work and regularly provides advice on the structuring, implementation, maintenance and vesting of management and employee incentive arrangements to both UK and overseas companies of varying sizes.