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Management and Employee Buyout (MEBO)

Combining management leadership with wider employee ownership

A Management and Employee Buyout (MEBO) is an internal succession solution that unlocks your management team’s entrepreneurial drive by enabling them to take over the company, while also giving employees a stake in the success they help create.

Where a business has a strong management team ready to lead it into its next chapter and recognises the additional impact employees becoming owners can have, a MEBO can be more effective than a traditional Management Buyout (MBO) alone or an alternative option to an Employee Ownership Trust (EOT).

At Postlethwaite, we help business owners explore whether a MEBO is the right succession route and advise on the legal structures needed to deliver a successful transition.

Like an MBO, the business is typically acquired by a newly formed company (Newco), owned by the management team. However, unlike a traditional MBO, ownership is also extended to employees.

This can be achieved by:

  • individual employees also becoming shareholders through a personal share ownership scheme (for example a SIP – see later); or
  • an EOT holding a stake on behalf of all employees, providing the benefits of employee ownership without requiring individuals to invest their own money.

Using an EOT is likely a simpler approach, but some companies feel that personal investment by employees will lead to higher levels of commitment.

Is an MEBO right for you and your business?

A MEBO could be a good succession solution where there is a desire to combine strong management leadership with wider employee participation.

It may be the right option if:

  • you have a capable and entrepreneurial management team ready to take the business forward
  • your management team supports the principles of employee ownership
  • your business has, or could develop, a collaborative and engaged culture, and
  • you want to reward both future business leaders and the wider workforce.

Every business is different, and we'll help you assess whether a MEBO is the most appropriate succession structure for your objectives.

Tax treatment for a MEBO

The tax treatment of a MEBO is generally similar to that of a traditional Management Buyout.

However, where at least 10% of the shares are sold to a Share Incentive Plan (SIP), it may be possible for the seller to benefit from 0% Capital Gains Tax on those shares, provided the sale proceeds are reinvested into qualifying investments.

As with all succession planning, tax should never be considered in isolation. We work alongside your accountants and tax advisers to help structure transactions in the most appropriate way for your circumstances.

Other considerations when doing a MEBO

Compared with a traditional MBO, a MEBO is likely to involve a more complex ownership structure. As with any employee ownership model, clear communication and employee engagement are essential to its long-term success.

It is also important to consider how ownership, decision-making and future rewards will be shared between the management team and employees to ensure the structure remains fair, sustainable and aligned with the company's objectives.

How we can help

With over 20 years' experience advising on employee ownership and internal succession, we help business owners design succession solutions that balance commercial, legal and cultural objectives.

Whether you're comparing a MEBO with an MBO, an Employee Ownership Trust or another internal succession option, we'll provide clear, practical advice to help you make an informed decision.

Get in touch with our team today for a no obligation initial discussion.