Getting your business “sale-ready” can be a tough enough task in itself, but finding a buyer who is prepared to pay the price you want (at the time you want) may be the main hurdle to your retirement plans.

If you are lucky enough to get to the point that you have a buyer waiting in the wings (and of course this could well be your management team), be prepared to put in significant time and energy to getting it through to completion. A lot of business-owners underestimate the time, commitment and complexity that can arise, even on a “simple” deal. Sadly, a simple one page Stock Transfer Form just won’t do.

It is all too easy to take your eye off the ball of running your business during this time. Falling sales or reduced performance may dent the buyer’s confidence and this must be avoided if at all possible.

Here we set out the key steps in the legal process when it comes to selling the shares in your business:

• You will want to feel comfortable with a prospective buyer delving into the affairs of your business before you disclose any information about your business. This will be particularly so if the buyer is a competitor, customer or supplier (as is often the case). They will need to see some information before an offer can be framed, and not only is this important for them (they want to know what they’re buying!) but also for you as the seller –being prepared and aware of potential issues in advance could avoid a situation in which the buyer may wish to discount the price due to something they discover during this process. To help you get comfortable, you will want to ensure that the buyer signs a confidentiality undertaking early on. Even if you get this signed, be wary of providing sensitive information too early.

• Once the buyer has enough information to put forward an offer (even if this is subject to a full due diligence exercise), we would always recommend that heads of agreement/a term sheet is drawn up to record the key deal terms. This will help your advisers when it comes to the legal documentation (a 5 page heads of agreement is much easier to navigate and negotiate than the full legal document that could run to 100+ pages). Heads of agreement will not be legally binding, but are essential if you want the sale process to be well-managed to give you the best chance of getting the deal through to completion. This can also help to keep you and the buyer organised to avoid major disruption to your business as timetables can be set along with the scope of due diligence.

• Once you’ve agreed the principal deal terms, the full due diligence process will start. As mentioned above, the buyer will want to look into the potential liabilities that come with a share acquisition and will want to investigate the affairs of the company from a commercial, legal and financial position. This will typically involve the preparation by the buyer/his advisers of a list of questions and requests for copies of documentation. On larger transactions, this may well be split between legal, accounting, tax and commercial, and external advisers may be involved.

• Whilst the due diligence exercise is ongoing, the parties will begin negotiating the Share Purchase (or Sale and Purchase) Agreement – the SPA. This is the document that will ultimately govern the terms on which the shares are sold and will usually be prepared by the buyer’s solicitors. Here you will find the payment terms, completion arrangements and also the warranties and indemnities to be given. Negotiations over warranties can be lengthy and this is often the biggest issue in agreeing the final documentation. Whilst the warranties themselves can be reason for further discussion, so can the limitations on the damages available for a breach.

• Although the warranty limitations (in relation to £ and time) can give the seller some security, the key means of protection will be through disclosure. This involves the preparation by the seller’s solicitors of a disclosure letter which sets out exceptions to the factual statements in the warranties and shifts the risk to the buyer. This will, of course, also be subject to negotiation and can take time and resource to prepare. If the buyer does not like what you disclosure, he may ask for an indemnity on the point in issue.

• Once the SPA and disclosure letter are in agreed form (and the loose ends in the due diligence process have been tied up), the deal can complete!

• Finally, the Stock Transfer Form can be signed 🙂 (along with all the other ancillary documentation, including board minutes, resignations and appointments to name a few).

But it doesn’t end there! Whilst the legal work may now be complete, there will be the practical hand-over of the business and potential deferred payment terms (or an earn-out) to consider.

Lots to take in…make sure you get your legal advisers involved at an early stage to project manage the deal, leaving you to get on with running your business!

For further information, please do not hesitate to contact an Everyman Legal Solicitor on 01993 893620 or email everyman@everymanlegal.com