By Angela Keery, Director, Tax Advisory Services and Chris Hylands, Director, Deal Advisory
Exiting a business does not have to be an all-or-nothing decision.
For many owners, the traditional idea of a full exit — selling 100% of the business in a single transaction — no longer reflects their objectives or circumstances. Partial liquidity, whether through minority or majority investment structures, often delivered through private equity, are increasingly used to balance personal de-risking with continued involvement and future upside.
When approached thoughtfully, these options can enhance flexibility rather than limit it.
Rethinking private equity
Private equity continues to divide opinion among SME owners. For some, it represents growth capital, professionalisation, and opportunity. For others, it is associated with loss of control, short-term thinking, or cultural disruption.
In reality, private equity is neither inherently good nor bad — outcomes depend entirely on alignment, preparation, and execution. Most private equity investors succeed by growing businesses, not dismantling them. Their returns are driven by value creation over a typical three-to-five-year horizon, not short-term cost reduction.
Beyond funding, experienced investors bring strategic perspective, operational expertise, and governance discipline — helping businesses professionalise without losing their entrepreneurial edge.
Why owners consider partial liquidity
Partial exits are often driven by a desire to reduce personal risk without stepping away completely. Common motivations include:
- Diversifying personal wealth
- Reducing financial concentration in a single asset
- Funding future growth or acquisitions
- Creating optionality for a later full exit
- Providing a route for some shareholders to exit while others remain invested
For many founders, these structures offer breathing space — allowing them to continue building the business with less personal exposure, and often setting up a “second bite” at value when the business is eventually sold in full.
What partial liquidity looks like in practice
Partial liquidity can take several forms, including:
- Selling a minority stake to a private equity investor or family office
- Bringing in growth capital to support expansion or acquisitions
- Structured deals combining secondary share sales with new investment
- Management buy-ins or buyouts supported by external capital
While each structure differs, they all introduce a partner into the business — and with that, new dynamics around governance, reporting, and decision-making.
Partnership, not passive capital
A common misconception is that minority investors are passive. In reality, even minority stakes typically come with governance rights, performance expectations, increased transparency, and strategic input.
Owners must be comfortable with accountability and shared decision-making. The quality of the relationship often matters more than the percentage sold.
Tax: a critical part of structuring
Tax considerations are central to any partial liquidity or private equity transaction — and the structure chosen can materially affect both the proceeds received and the value of what is retained.
Capital Gains Tax will typically apply to the disposed portion of shareholdings, with timing and rate influenced by deal structure and personal circumstances. Eligibility for Business Asset Disposal Relief requires specific conditions to be met, and the structure of any retained shareholding can affect whether future disposals continue to qualify. For owners intending to retain equity, Inheritance Tax reliefs available to trading businesses can also be affected by changes in ownership structure.
Management incentivisation is often part of these transactions — tax-efficient share schemes such as EMI can align the wider team with the investor’s growth plan, but the earlier they are introduced, the greater the benefit.
These areas are best addressed before a transaction is negotiated, not during it.
Where these structures are not the right fit
Despite their potential, partial liquidity and private equity are not suitable for every business or every owner.
Successful partnerships typically require a credible and ambitious management team, willingness to accept accountability and external governance, openness to change, and clear alignment on strategy, time horizon, and risk.
Where owners are unwilling to share control, resist transparency, or lack growth ambition, bringing in an investor is unlikely to deliver a positive outcome.
Control, influence, and reality
A common concern among founders is loss of control. In practice, outcomes vary widely depending on deal structure, shareholder dynamics, and partner selection.
Some owners exit fully at transaction. Others retain a meaningful stake and remain actively involved. For many, a partial deal represents a next chapter rather than an immediate exit — providing liquidity while preserving upside and influence. The key is understanding what control really means in practice, and ensuring expectations are aligned from the outset.
Choosing the right partner matters
The investor market is not homogenous. Investors vary significantly in investment style, sector focus, time horizon, risk appetite, and cultural approach.
Choosing the right partner is therefore as important as choosing the right structure. Cultural misalignment is one of the most common causes of underwhelming outcomes — and for SMEs and family businesses, where the personal and the commercial are closely intertwined, fit matters even more.
Reference checks with management teams of previous portfolio companies are among the most informative steps an owner can take. Investors who deliver on their promises are usually happy to make those introductions.
Preparation drives partnership quality
As with all transaction routes, preparation materially influences outcomes.
Businesses that engage with investors successfully are typically operationally robust, supported by reliable financial information, led by capable management teams, and clear on their growth strategy and value creation plan.
Preparation also extends to owner readiness. Founders must be clear on their desired level of involvement, appetite for change, and willingness to work within a structured governance framework. Misalignment at the outset — particularly around control, timelines, or risk appetite — is one of the most common causes of dissatisfaction.
A flexible step, not a final one
For many owners, partial liquidity is best viewed as a step rather than a destination. It releases value without ending involvement, brings in expertise without surrendering control, and provides access to growth capital without taking on excessive debt.
Done well, it allows owners to re-energise personally, invest in growth, and position the business for a future exit at a higher value. Private equity, in this context, is best seen as a tool within a broader exit or succession strategy — not an end in itself.
When alignment is right, these structures can preserve flexibility, enhance value, and keep future options firmly open.
If you would like to explore private equity or partial liquidity options for your business, contact Angela on angela@hnhpartners.co.uk or 07704 825462, or Chris on chris@hnhpartners.co.uk or 07715 276 083 to find out how HNH can assist.
ENDS