Management Buy Outs
The Legal Side of a Management Buy Out
There is usually more legal documentation in a management buy out than a sale on the open market, the management buy out team should appoint legal advisers to guide them through the transaction.
WHAT ARE THE MAIN LEGAL DOCUMENTS INVOLVED IN A MANAGEMENT BUY-OUT?
The Heads of Agreement
This document set the rules of the management buy out for both the buyers and the sellers.
The Sales and Purchase Agreement of the Buy Out
This document sets out whether shares or assets are being sold by the Sellers to the management buy out company. These are important differences in these sale formats. Both sides must consider which is best for them.
Subscription Agreement for direct investment by an Institutional Investor (if applicable)
i.e. Venture Capitalists. This sets out the rules regarding new investment in the business.
Property Sale and Leaseback Documentation
If the business includes property, it is sometimes possible to mortgage that property to a financial institution- thus retaining the use but releasing the capital. There may be tax implications involved with this so professional advice should be sought.
Shareholders Agreement
Financial Institutions will want this, e.g. Legal Charges and/or Debentures over the management buy out teams shares and possibly other assets, the assets of the buy out business, as security for the investment of the financial institution.
Articles of Association
Containing such matters as the rights attached to various classes of shares; and the general rules for meetings of Directors.
Service Agreement
Member of the management buy out team will normally be expected to enter into new Service Agreement ensuring their continued involvement with the business, possibly with different salary levels.
Employee Incentives
Such as Share Option Agreement, Employee Share Ownership plans
This list is provided for information only. It cannot constitute legal advice. Each transaction is different. Please feel free to contact Tony Forster, Commercial Partner for detailed advice when required.
Contact
Tony Forster Head of Company Commercial
Martino Burgess Associate
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This article summarises the law on issues which we believe may be of interest to your business. It is not a comprehensive review of the subjects and accordingly is published without responsibility for loss occasioned to any person(s) acting or refraining from action as a result of information published. This document is provided for information only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.