A guide to selling a business: From preparation to exit
What is the process for selling a business?
Our specialist corporate team is often asked what the process is when it comes to selling a business. Although every transaction differs to the next, Karen Edwards gives a general overview of the business sale procedure in this guide.
What are the steps in selling a business?
While every business sale is different, there are three main parts to the process. An overview of each of the three sections is offered below.
Preparation is key when it comes to selling your business. It is vital that you spend time (this could be months) grooming your business for sale so that you can realise the maximum value for your interest. You will want to ensure that your business is an attractive prospect to any buyer.
How you structure the sale from a legal point of view is more often than not driven by what tax implications there will be, so it is recommended that you take the relevant tax advice regarding what structure suits you best.
If you operate a business under a limited company, you may choose either to:
- sell your shares in the company, for which you will be paid the price for your shares in the company; or
- authorise the company to sell the assets (including goodwill) of the business, in which case the company will receive the price for those assets, which in turn can be distributed to you as a shareholder.
If you operate the business under a partnership or you are a sole trader, the only option would be to dispose of the assets.
Selling a business is something that few managers or owners will do more than once so it is important to get it right the first time.
The process involved can be complex, but our corporate team can provide clear advice, ensure that negotiations run as smoothly as possible and help to minimise your liability in the future. Ideally, your accountant will also be on hand throughout, as their ongoing input will be needed on the tax-related aspects of the deal.
The legal process for selling a business can be broken down as follows:
1. Heads of terms
This document sets out the main terms of the transaction and whilst the majority of its provisions are not legally binding, it sets out the intentions of the parties, who will be expected to adhere to the heads of terms.
This is also a way of ensuring that any issues are ironed out before moving to contract stage. I've written extensively on this in my guide to heads of terms here.
The buyer will almost always want to ask questions about your company/business, whether these are legal, financial and tax, or property related. This can be a time-consuming exercise for the seller but does offer transparency for the buyer and again, is an opportunity for the seller to disclose any potential issues at an early stage.
A share sale agreement, or business sale agreement will need to be prepared and agreed between the parties. This will reflect the heads of terms and importantly, will set out various limitations on the seller’s future liability. A solicitor will be able to negotiate those terms to ensure they are as favourable as possible.
As seller, you will be asked to provide warranties about the business as at the date of sale and these are set out in the contract. A solicitor will work through those warranties with you and prepare a list of any disclosures you wish to make against the warranties (called a ‘Disclosure Letter’). This is another way in which your future liability can be limited.
5. Additional documents
Particularly in a share sale, there will be additional documents to agree, such as stock transfer forms to transfer shares, any letters of resignation and various Companies House forms. In a business sale, your solicitor can also advise you on ancillary issues such as consulting with employees and limiting any employment related liabilities.
Once the deal has completed, your solicitor will submit any necessary documentation to bodies such as Companies House and the Stamp Office. There will also inevitably be a practical handover between seller and buyer.
Selling a business: Legal advice
This is intended as a very simple guide of what a seller should expect. The type and size of the transaction will ultimately shape the process that needs to be followed.
Selling a business is often the culmination of many years of hard work nurturing and growing that business. Plan well and prepare the business for sale. Pick the right time to exit by considering the market and ensuring you will have the time to devote to the process. Choose a solicitor who specialises in business sales so that you get the right advice.
Specialist business sale solicitors in Bournemouth, Christchurch and the New Forest
If you have any questions, you only have to ask us at Frettens. Please contact us here or call 01202 499255 and Karen or a member of the team will be happy to chat about your situation and your particular requirements.
Related articles on selling a business:
You can read Karen’s other articles on selling a business by following the links below: