Many UK manufacturing businesses are family-owned enterprises, often having been owned and operated by the same family for multiple generations.
When it comes to passing the business to the next generation or transferring it to a management team, careful planning is fundamental.
This process should ideally begin several years before a proposed transfer or sale.
Our Manufacturing and Corporate solicitors explore how to prepare for succession and incentivise the senior management team with Growth Shares, a flexible solution that provides a stake in the business's future value.
What are growth shares?
Growth shares are a type of equity share specifically designed to enable certain key employees to share in a company's future growth.
Unlike traditional shares, growth shares offer a stake in the future increase in the company's value, not its current value.
Some key features include:
- Valuation: Growth shares are typically issued at a nominal amount initially because they only have value if the company grows. The company must be formally valued before implementing a growth share scheme.
- Rights: Growth shares often carry limited or no voting rights and might not provide a right to dividends until certain performance conditions are met. They will carry a right to capital, but only above a certain "hurdle value", which is more than the company's value at the point of issue.
- Conditions: They can be subject to performance conditions and may vest over time or upon achieving specific milestones.
Employee share options: They can be issued via a share option scheme, such as an EMI plan (if the company qualifies for EMI).
Growth shares and succession planning
Succession planning is crucial for the longevity and stability of any manufacturing business.
Growth shares can be an effective tool in this process, particularly for transferring ownership and leadership to the next generation of management.
Here's how growth shares can facilitate succession:
- Incentivise Employees: Companies can motivate their management team to drive the business forward, aligning their interests with those of the company.
- Retaining Talent: Growth shares can be a powerful retention tool, encouraging talented individuals to stay with the company long-term to realise the benefits of their shares.
- Smooth Transition: As senior management approaches retirement, growth shares can ensure that the knowledge and leadership remain within the company by promoting and retaining junior managers.
- Aligning Interests: By giving key employees a stake in the company's future growth, their interests align with those of the current owners and the company itself. This encourages employees to work towards the long-term success and stability of the business.
- Attracting Talent: Growth shares can be an attractive incentive for potential new employees who might be considered as part of the succession plan. They help to attract and incentivise top talent who have the potential to take on leadership roles, as they offer a stake in future growth.
What can we do to help?
Growth shares can be an effective tool in succession planning.
They help to retain and motivate key employees, align their interests with those of the company, and provide flexibility in financial and equity planning.
These factors can contribute to a smoother and more successful leadership transition within the company.
Contact Our Manufacturing Solicitors
For more advice on succession planning in the manufacturing sector, contact our Manufacturing Solicitors or Corporate Team on:
01619414000
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Ryan Fletcher
Partner
Ryan has 6 years of experience acting as a Corporate solicitor. Ryan is the Head of Myerson’s Banking Sector. He has specialist expertise in mergers and acquisitions, complex demergers and restructuring, private equity investment, and constitutional arrangements.
About Ryan Fletcher