Selling a business
Trade sale, private equity, MBO or EOT: comparing your exit options
How a trade sale, private equity deal, management buy-out and Employee Ownership Trust compare on tax, price, control, speed and who each one suits.
There are four common ways to sell a privately owned company: to a trade buyer, to private equity, to your management team, or to an Employee Ownership Trust (EOT). The short answer is that no route is best for everyone. An EOT usually gives the best tax result, a trade sale usually gives the most cash upfront, and an MBO or EOT usually gives the most continuity. The right choice depends on what matters most to you.
The four routes in brief
- Trade sale: a sale to another business, often a competitor, supplier or customer.
- Private equity: a sale to an investment fund, usually with management and often the sellers keeping a stake.
- Management buy-out (MBO): a sale to the people who run the business, usually through a new company they set up.
- Employee Ownership Trust (EOT): a sale of a controlling interest to a trust that holds the shares for all eligible employees.
Tax for the sellers
Trade sale. Usually capital gains tax. Business Asset Disposal Relief (BADR) can give an 18% rate on up to £1m of lifetime qualifying gains for disposals from 6 April 2026. Gains above that are taxed at 18% or 24%. If part of the price is an earn-out tied to your continued employment, it can be taxed as employment income instead.
Private equity. Similar to a trade sale on the cash element. Buyers often ask sellers to roll over part of the proceeds into equity in the new structure. That rollover can defer tax on that part of the price. The employment income risk on earn-outs and incentives is often higher, because sellers are usually expected to stay on.
MBO. Normally capital gains tax, with BADR where the conditions are met. The main risk is that, where the company funds its own purchase, HMRC can apply anti-avoidance rules that tax the proceeds as income. A clearance under section 701 ITA 2007 is commonly obtained. Where shares are exchanged, a clearance under section 138 TCGA 1992 is often obtained too.
EOT. Since 26 November 2025, where the conditions are met, half of the gain on a sale of a controlling interest is relieved. The other half is taxed at normal capital gains tax rates (18% within the basic rate band, 24% above), and BADR can't be claimed on the same sale. An EOT sale can still mean less capital gains tax than a trade sale, because only half the gain is taxed now: at most 24% of half the gain, which is 12% of the whole gain. The relieved half is held over and comes into charge if the trustees later sell the shares. For sales from 30 October 2024, the rules are also stricter. The relief can also be clawed back if the conditions stop being met within a set period after the sale.
Price and how it is paid
A trade buyer may pay more than anyone else, because it can benefit from combining the businesses. Much of the price is usually paid at completion, although earn-outs and deferred consideration are common.
Private equity pays a price based on the returns the fund expects. Part of your value may sit in rollover equity, which you only realise on the fund's own exit.
MBO and EOT prices are often paid over time from the company's future profits. That means:
- you carry the risk that the business does less well than expected
- the payment schedule has to be affordable, or it puts the business under strain
- for an EOT, the trustees must take reasonable steps not to pay more than market value
Where the price is fixed but paid later, the whole amount is usually taxed at completion. So you may pay tax before you receive all the cash.
Control and continuity
A trade sale usually means the business is absorbed into the buyer. Your name, team and culture may change, and you may have little say after completion.
Private equity usually keeps the business standalone, but the fund will have significant control and a plan to sell again within a few years.
An MBO passes the business to people you know and trust. It stays independent, but ownership moves to a small group.
An EOT keeps the business independent and owned on behalf of all eligible employees. Former owners can stay on, but for sales from 30 October 2024 they and connected persons cannot control the trust. Employees can also receive qualifying bonuses of up to £3,600 a year free of income tax.
Speed and certainty
Trade and private equity sales usually involve a marketing process, detailed due diligence and negotiation. The deal can change late on, or fall away.
MBOs and EOTs avoid a wide marketing process, and the buyers already know the business. That can make them quicker and more certain. But they still need careful structuring, a supportable valuation and, often, HMRC clearances. HMRC responds to the main statutory clearances within 30 days of a complete application, so build that into the timetable.
Comparison at a glance
| Trade sale | Private equity | MBO | EOT | |
|---|---|---|---|---|
| Sellers' tax | CGT, BADR may apply | CGT, rollover can defer part | CGT, BADR may apply, income tax risk | CGT on half the gain if conditions met, no BADR |
| How price is paid | Mostly upfront, earn-outs common | Cash plus rollover equity | Often over time from profits | Often over time from profits |
| Control after sale | Passes to buyer | Fund has significant control | Passes to managers | Held in trust for employees |
| Continuity | Often limited | Business usually standalone | High | High |
| Speed and certainty | Depends on buyer | Depends on fund | Often quicker | Often quicker |
| Sellers staying on | Sometimes | Usually expected | Sometimes | Common, without control of the trust |
Who each route suits
- Trade sale: owners who want the highest price and a clean break, and who are comfortable with the business changing.
- Private equity: owners who want to take some value now, stay involved and share in a second exit.
- MBO: owners with a strong management team who want continuity and can accept being paid over time.
- EOT: owners who value independence and their employees' future, and who want a tax-efficient exit at market value, paid over time.
What to do
- Decide what matters most to you: price, timing, tax, or the future of the business.
- Check whether you meet the BADR or EOT conditions now, and will at the time of sale.
- Model the after-tax proceeds and the timing of payments for each route, not just the headline price.
- Take advice on structure before heads of terms are signed, while you still have choices.
This article is general information, not advice. Tax rules change and their effect depends on your circumstances. Please speak to us before acting.
