Before The Exit (S&P)

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The sale of a business is often one of the most emotional and significant decisions of your life. This article shares a couple of common best practices that has benefited other founders and company owners when they go through the process of selling their business.

Published/Updated on Jan 12, 2023

By: Söderberg & Partners
Published: Jan 2023

Things to think about before selling your business

The sale of a business is often one of the most emotional and significant decisions of your life. Being offered a large sum of money for your life’s work is exciting and for some, a once-in-a-lifetime opportunity. How your deal is structured can have a material impact on taxes and can largely affect your returns. After a long and sometimes stressful sales process, it is important to establish and follow a plan to secure your future financial goals for yourself and your family. 

Tax calculation for a shareholder

The structure of the business has notable tax implications. The most common business structure is owning shares as a private person, and not through a parent company.  If you sell shares in your company, you have the right to tax the sale as a dividend up to the so-called financial limit amount  (SV: gränsbeloppet), i.e. the amount of which you are entitled to dividends. Excess part up to 90 Income Basic Amount (SV: Inkomstbasbelopp – IBB. SEK 6,687,000 for 2023) is taxed as income from salary where the maximum taxation amounts to approx. 56%. Amounts above 90 IBB are taxed at 30%.

How to calculate how much you can tax as a dividend

Sweden has relatively beneficial rules regarding dividends when you run a business. As a general rule, dividends up to a limited amount are taxed at 20%. Simplified, you can say that the limit is calculated as 50% of the company's total wages. If you own 20% of a company with SEK 10m in salary payments over a year, you can withdraw (50% x 10,000,000 x 20%) SEK 1m in dividends at 20% tax. The dividend is made on taxable profit in the company. Taxation on the company's profit is 20.6%. For each SEK profit in the company, the taxation in the event of dividends is a total of approx. 36.5%. To qualify for using these taxation rules, you need to draw an annual salary of SEK 713,280, or SEK 445,800 + 5 percent of the total salaries in the company, incl. any subsidiaries (2023).

A requirement to take out dividends is that your company makes a profit so that there is free equity to distribute. If you cannot or do not want to take out a dividend in a specific year, you have the right to postpone the dividend to future years. On the day your business is sold, you can use your accumulated financial limit amount to get a part of the profit at a lower tax rate.

Why a holding company might make sense

To avoid a higher tax on excessing parts that are not covered by the dividend rules, it can be beneficial to own your shares through a parent business entity. To avoid double taxation, dividends to holding companies are not subject to taxation. It is when you first withdraw funds from the holding company, the tax must be paid. 

If you choose not to have any activities in your holding company for five calendar years, you can then withdraw the capital with 25% tax, according to the current tax rules.

Taking care of your family

Another question that becomes relevant during a sale is how you and your family are affected when you suddenly become very wealthy. Many want to ensure that their family and children have a secure future if something unexpected happens. For example, according to Swedish legislation, people who live together but are not married do not inherit from each other. If you have a partner and children, the children will receive your fortune if you pass away. In addition, a guardian must manage the capital until the children turn 18. To protect your family if you were to pass away, you need to write a will that regulates what would happen in such a situation.

(Founder feedback: "Consult a legal expert/lawyer, should cost approximately 8-10ksek")

Your specific tax situation

Every situation is unique. How the taxation will look in the event of a sale of your company depends on how the ownership constellation looks today, how large a proportion of passive owners there are in the company, your role in the company after the sale, etc. Therefore, there is good reason to already at an early-stage plan for your exit before it happens.

Feel free to reach out for further consultation and recommendations on how to confidently reach your financial long-term objectives. Read more about our exclsusive (1h free consulting) to sup46 members under perks & offers or feel free to reach out via the contact details below.

Jonathan Jehander, Wealth Manager at Söderberg & Partners.
Phone: 0722275189

Additional founder feedback on article

  • "Currency exchange: Think about how you want to be paid. We chose USD, the strongest currency, and you can get a lot more SEK than you expected if you exchange at the right time."

  • "The year of the sale: This also determines how you are taxed and can affect when you have to pay taxes."

  • "Rollover shares: Make sure they are not counted as assets until they are sold in some way. You don't want to be pre-taxed for the purchase value upon sale without having sold the shares, that will be expensive."