Sooner or later, a time comes when you as a director-major shareholder (DGA) start thinking about the succession of your business. A moment that often involves a lot of emotion. Especially if you founded the company yourself, but also if you are the second or third generation at the helm of a family business.
A number of options present themselves. For example, you may be thinking about transferring to the next generation within your family. In the absence of suitable successors in the family, you may also consider an outside buyer, such as a competitor. Also, have you ever thought about the possibilities of transferring your business to one or more employees?
The employee as business successor
The employee as business successor has a great advantage: he or she knows the company. However, that does not mean that this person is immediately suitable to take over the role of dga. This role means that in addition to knowledge of the company and its products, you must also understand strategy, the market, personnel policy, finances and - not to mention - the risks associated with entrepreneurship. Therefore, as a DGA, you should assess early on whether you consider your employee suitable to take on the role as owner.
Employee participation
When in doubt about the suitability of that one employee, you can also consider a limited number of employees as acquisition candidates. Here it is important that their capabilities complement each other and that together they form a cohesive team. A process in which employees also acquire shares in the company where they work is called employee participation. This can be initiated by both the managing director and the employees.
Four points to consider when transferring business to employees
- Make an assessment of the value of your business
A first step in business transfer is to conduct a valuation. In the valuation, an estimate is made of the value of the business, so that you, the owner of the business, have an idea of the proceeds in the event of a sale. This is important for your financial planning/pension. In addition, the intended participants also need to know the amount at which they can purchase a share interest. This is related to the required financing. - Look for financing options to "break up" acquisition sums
It is not often that employees have large sums of money at their disposal so that they can suddenly buy 100% of the shares. Therefore, the acquisition process is often broken up into several tranches. The process can be accelerated by providing bank financing for part of the de ondernemingswaarde. - Pay attention to the tax consequences of the transfer
An often underexposed topic, but one that needs attention early in the stage, concerns the tax consequences. A transfer from dga to employee is a "potentially tainted transaction," meaning that the Inland Revenue considers whether it is a transaction on arm's length terms. If the Inland Revenue finds that an employee has acquired an interest at what they consider to be a low value, they can designate it as a pay component and argue that payroll taxes should be paid on it. - Record agreements made
Finally, there is the legal settlement. This includes the purchase agreement. But also documents such as a shareholder agreement (what do you do in case of conflict or death?), management agreements and possibly money loan agreements are crucial to discuss well between parties and record. That way, everyone is happy at the time of transaction, but also thought about possible future situations.
