Whilst the process might seem daunting, with the help of your professional advisers you can ensure that things run as smoothly as possible when you come to sell your business.
Here are our top 10 things to consider:
- Check your Company’s constitution
What do your Articles of Association or Shareholders’ Agreement say? It may not be important if all of the owners are agreed on the price and also the timing of the sale of the company, but ahead of time you will want to check what happens in the event that one or more shareholders do not agree.
If you have minority shareholders (for example through an employee share scheme) then your advisers may have included a Drag Along provision giving you (or the holders of a specified majority of the shares) the ability to compel a sale of 100% of the shares in the company. Without this, and in the event of disagreement with any shareholder holding over 10% of the share capital, you may need to consider selling the assets of the business instead of the shares.
Considering this ahead of a sale with professional advice will, at the very least, let you know what the position is.
2. Are you all agreed on key points?
Following on from the review of your Company’s constitution and the points raised above, it is always a good idea to discuss, with any other owners of the business, what each of you want on a sale. Many trade sales have an earn-out element which may not work for business owners who want a “clean break”. Equally you should consider what sum, net of tax, you need to retire. This might even be less than you first think but you need to work it out based on your current lifestyle and your plans for retirement.
Being open and transparent with your co-owners will be vital if you are looking to sell as efficiently as possible.
3. What about your employees?
While selling the business may be an exciting thought for you, your team members may well have a very different perspective.
The buyer will, no doubt, want to ensure a smooth handover of the business so your team may well be critical in delivering this. Locking them in with share options could make this a more exciting prospect for them, but care should be taken to ensure a tax-efficient structure is devised and implemented in good time before you have an offer on the table.
4. Will the buyer want all of the assets?
As an example, your company may own the property from which it operates. The buyer, perhaps a large competitor, may well not need this, or would want to lease the premises rather than purchase them.
You should think about this, with your legal and tax advisers, well in advance of an approach from a prospective buyer.
5. Will you may more tax than you need to?
Whilst you would hope and expect that the proceeds of the sale of your shares would be taxed at a rate of 10% Capital Gains Tax with the application of Entrepreneurs’ Relief, this may not always be the case.
Often, for income tax purposes, shares are held among family members. If they are not a Director, Company Secretary or employee, then 20% tax might be payable on their proportion of the shares.
Planning in advance of a sale will ensure that you can consider this with your advisers and have the most tax efficient structure in place.
6. Contracts – do you have any?
If you have key customers and suppliers you’ll need to check whether you have sufficient contracts in place and, if not, consider drawing them up ahead of a sale of the business.
This could be particularly important too if you lease the premises from which you operate. A buyer will want to ensure they have continuity of occupation and the terms applicable to this.
7. Due Diligence
Selling your business can take a lot of time and effort, and the first thing a buyer will want to do is undertake a due diligence exercise.
Being prepared and anticipating what they will be looking for at this stage could save you considerable time so, with your advisers, it makes a lot of sense to take the initiative and prepare a bundle of relevant documents.
If the buyer’s review of the due diligence documentation reveals any substantial issues, they may well ask for a reduction in the price. By preparing the bundle in advance, you can anticipate this and rectify any problems (as far as possible) before they become an issue for the buyer.
8. Statutory Registers
As part of the due diligence exercise, the buyer will want to take a look of the statutory registers. These provide the legal evidence of the ownership of a limited company.
Often registers are not kept up to date, or do not exist at all. By undertaking a due diligence exercise early on, you can ensure your statutory registers are up to date, or reconstituted if necessary, in line with the filings shown publicly at Companies House.
9. Do you have professional advisers?
You may be tempted to negotiate the headline terms of a deal for the sale of your company without any professional advice. Whilst legally there is nothing wrong with this, it is not recommended. Having experienced advisers on your side through this process from the very beginning may well ensure that the terms are fair, balanced and that proper project management is in place.
10. Do you understand the process?
Selling your company could be one of the most stressful processes you go through as an owner-manager, particularly if not carefully managed. Your advisers can talk you through what to expect and at what stage to make sure that you aren’t completely distracted from the running of the business while negotiations proceed with the buyer.
For further information on please do not hesitate to contact an Everyman Legal Solicitor on 01993 893620 or email everyman@everymanlegal.com
