For many accountancy practice owners, building a successful business can take decades.
Yet when the time comes to retire, reduce involvement, or move on to a new venture, the absence of a clear exit strategy can significantly impact both value and continuity.
Whether your objective is to achieve a clean exit, secure the long-term future of the practice, reward key employees, or preserve your firm's culture, succession and exit planning should be considered well in advance.
The options available will often depend on the structure of the practice, the objectives of the owners, and the future direction of the business.
Our Professional Services Lawyers explore the options available.
Why Exit Planning Matters
Too often, exit planning is only considered when a sale opportunity arises or retirement is imminent.
However, the most successful transitions are usually those planned years in advance.
Early planning allows business owners to:
- Maximise the value of the practice
- Identify and address potential legal or operational issues
- Ensure continuity for clients and employees
- Minimise disruption to the business
- Put in place a structure that achieves both commercial and personal objectives.
For accountancy practices, where client relationships and reputation are often closely linked to the owners themselves, proactive succession planning can be particularly important.
Understanding Your Current Structure
The first step is understanding how the practice is currently structured.
Accountancy practices commonly operate through either a limited company, a limited liability partnership (LLP), or a partnership, and each structure can present different succession and exit opportunities.
Owners should review the key constitutional documents governing the business, such as:
- Articles of association
- Shareholders' agreements
- LLP agreements
- Partnership agreements
These documents often contain provisions that will affect succession planning and any future sale process.
Questions to consider include:
- Who owns the business?
- What rights and obligations apply to shareholders or partners?
- What happens if an owner retires, resigns, becomes incapacitated, or dies?
- What mechanisms exist for transferring ownership interests?
- Are there provisions that determine the value of the business or the owner’s stake in a business?
Understanding the answers to these questions early on can help avoid disputes and provide greater flexibility when planning for the future.
Preparing for Succession
An effective succession plan should not simply focus on the transaction itself.
It should also consider what happens if ownership needs to change unexpectedly.
Cross-Option Agreements
For incorporated practices with multiple shareholders, cross-option arrangements can provide valuable protection in the event of a shareholder's death.
Typically linked to life insurance policies, these arrangements provide funding to facilitate the purchase of the deceased shareholder's interest.
Without appropriate funding mechanisms, surviving owners may struggle to acquire the shares and maintain control of the business.
Drag and Tag Rights
Where there are multiple shareholders, drag-along and tag-along provisions deserve careful consideration.
Drag-along rights allow majority shareholders to require minority shareholders to participate in a sale on the same terms, helping to prevent a minority shareholder from blocking a transaction.
Conversely, tag-along rights protect minority shareholders by allowing them to participate in any sale on equivalent terms.
These provisions can become particularly important when a buyer is seeking to acquire the entire business.
Exit Route One: A Trade Sale
A trade sale remains one of the most common exit routes for accountancy practice owners.
Where the practice operates through a limited company, a sale often takes the form of a share sale, in which the buyer acquires the company's entire issued share capital.
This means the buyer acquires the business together with its contracts, employees, assets and liabilities.
As a result, buyers will usually undertake extensive financial, legal and regulatory due diligence before proceeding. Areas commonly reviewed include:
- Client contracts and recurring fee arrangements
- Regulatory compliance
- Employment matters
- Professional indemnity risks
- Data protection compliance
- Historic liabilities
Sellers should therefore consider preparing the business well in advance of a potential transaction by ensuring records, contracts and compliance processes are up to date.
Exit Route Two: An Asset Sale
Depending on the business structure, an asset sale may be the preferred option.
Under an asset sale, the buyer acquires selected assets of the practice rather than the legal entity itself. This structure is often used for sole trader practices, partnerships and LLPs, although it can also be used by limited companies.
Asset transactions can be more complex operationally because individual assets, contracts and employees may need to be transferred separately. Additional considerations can include:
- TUPE and employee transfers
- Assignment or novation of client contracts
- Landlord consent requirements
- Software and technology licences
- Regulatory approvals or notifications (if applicable)
Careful planning is essential to ensure the buyer receives everything required to continue operating the practice effectively following completion.
Exit Route Three: Management Buy-out
Where the practice operates through a limited company, as opposed to a sale of the share capital of the company to a trade buyer, it may be feasible for some of the existing management team to buy out the existing owners.
However, whether this is feasible exit route largely depends on whether there a group of existing managers who have the appetite to step up as business owners and how such an acquisition would be funded either from their own funds or usually with some support from a third party lender.
Exit Route Four: Employee Ownership Trust
Employee Ownership Trusts (EOTs) have become an increasingly popular succession option for professional services firms generally.
An EOT allows the owners of a qualifying company to sell a controlling interest to a trust established for the benefit of employees. One of the principal attractions is the favourable tax treatment available to qualifying transactions.
In addition to potential tax advantages, an EOT can:
- Preserve the culture and legacy of the firm
- Create a succession route without requiring a third-party buyer
- Provide greater control over transaction timing
- Incentivise employees through ownership participation and tax-efficient bonuses
Although EOTs have not been widely adopted by accountancy practices, due to the regulatory hurdles involved in an audited practice being controlled by a trust.
It would therefore be necessary to seek regulatory and tax advice in the first instance to ascertain whether the EOT model would be a possible exit option.
Post-Completion Considerations
A successful exit does not end at completion.
Owners should consider how key client relationships, operational knowledge and regulatory matters will transition following the transaction.
Depending on the deal structure, sellers may remain involved for a period to assist with the handover and integration process.
Restrictive covenants are also commonly included to protect the value of the business being acquired.
These may restrict former owners from competing with the practice, soliciting clients or employees, or otherwise undermining the goodwill that has been sold.
Where professional indemnity insurance is involved, owners should also consider ongoing liability for historic work and whether any run-off cover or other insurance arrangements are required following the transaction.
This is often a key issue for professional services businesses such as accountancy practices and should be addressed clearly in the sale documentation.
Planning Ahead
Every accountancy practice is different, and there is rarely a one-size-fits-all approach to succession planning. The right solution will depend on your objectives, timescales, ownership structure and the future aspirations for the business.
Whether you are considering a sale to a third party, transitioning ownership to existing management, or simply beginning to think about retirement, planning early can help maximise value and ensure a smoother transition for you, your employees and your clients.
Seeking legal, tax and financial advice at an early stage can help identify the most appropriate route and ensure that your practice is well positioned when the time comes to exit
Thinking about the future of your practice?
Whether you are years away from exiting or already in conversation with a buyer, early advice on structure, succession and sale options can make a material difference to the outcome.
Contact our Corporate and Professional Services team to talk through your options.
0161 941 4000
Latest Professional Services News
Accountancy Practice Succession and Exit Planning: A Legal Guide
For many accountancy practice owners, building a successful business can take decades. Yet when the time comes to retire, reduce involvement, or move on to a new venture, the absence of a clear exit strategy can significantly impact both value and continuity. Whether your objective is to achieve a clean exit, secure the long-term future of the...
Read Blog
Restrictive Covenants for Accountancy Firms: A Practical Drafting Checklist
Restrictive covenants can be a powerful safeguard, but they are only effective if they are well drafted and carefully tailored. Overly broad covenants that are wider than necessary are unlikely to be enforceable, leaving firms exposed precisely when they need protection the most. Our Professional Services Lawyers have created a checklist...
Read Blog
Protecting Client Relationships: Why Restrictive Covenants Matter for Accountants
Restrictive covenants are clauses within an employee’s contract of employment or service agreement which restrict an employee’s actions during or after their employment with the firm. They aim to protect the legitimate interests of the employer’s business by placing limited, time-bound obligations on former employees after their employment ends...
Read Blog
Simon Nolan
Senior Associate
Simon has experience acting as a Corporate Solicitor, acting as a Senior Associate in our team. Simon has specialist expertise in a variety of corporate instructions, including employee ownership trusts, share acquisitions and disposals, company reorganisations and incorporations.
About Simon Nolan