Preparing a Company for Sale

Selling a business in the UK involves more than just finding a buyer. From choosing the right deal structure to preparing documentation, our step-by-step guide helps you understand how to prepare a company for sale and how to avoid costly legal mistakes.

Choosing The Right Deal Structure

The two main ways in which people sell their business are either an asset sale or a share sale. Deciding what kind of deal structure is best suited for your business can be difficult. Therefore, we have summarised the key advantages and disadvantages of both asset and share sales in our article found here.

Business Valuation Methods

Once you have established what it is that you are selling (assets or shares) it is important to think about what you will receive in return for the sale of your business (the consideration). We would recommend contacting a corporate finance accountant to help you assess the current market value of your business and to assist you throughout the sale process.  

It is also important to think about when you will receive consideration. It could be that you obtain the full consideration on the day of completion, or you may receive deferred consideration (where you receive a set amount over a period of time). Earn outs are another option whereby the final consideration that you receive is contingent upon hitting certain predetermined targets relevant to your business. 

For share sales you might also want to consider if you are going to use a price adjustment mechanism such as completion accounts. Price adjustment mechanisms are useful as they can account for fluctuations in the value of the business from the initial offer to when the deal completes. Alternatively, you might use a locked-box accounts method, which is where the purchase price is fixed based on a historic set of accounts. Locked box accounts mean the Buyer assumes the risk of any fluctuations in value of the company and must also take steps to prevent any ‘leakage’ (where the seller extracts value from the company) between the date of the accounts and the completion date. 

Tax Considerations for Selling a Business

There are certain tax reliefs and exemptions that are available when disposing of a business such as Business Asset Disposal Relief (personal) or Substantial Shareholding Exemption (corporation), however qualifying conditions will need to be met. Therefore, it is vital that you receive tax advice early on to make sure that you are considering the tax efficiency of both the business and your personal tax position. 

Corporate Housekeeping and Documentation

Before you proceed with a sale it is really useful to make sure that all your company’s documents are in order. As part of the sale process, it is likely that you will have to provide key information about the business to the buyer (this could be via a data room). Having your documents accessible will help to speed up this due diligence process, making the whole transaction much smoother. 

Managing Employees During a Sale

Key documents to make sure you have are:

For Asset Sales:

• Copies of all contracts e.g. supplier, customer and employee
• Share certificates
• Board minutes
• Statutory registers required to be maintained (including up to date copy of register of members)
• Copies of any documents relating to alterations of the share capital
• Structure chart of the company and any group

For Share Sales:

• Incorporation document (and articles of association) 
• Copies of any property leases/ titles 
• Copies of any licences or permits 
• It is also worth checking that your Companies House filings are accurate and up to date, as well as making sure your financial records are in good order. 

Managing Employees During a Sale

A prospective buyer will want to ensure a stable workforce post-completion and will want to see that all employee files are up to date.  

For share sales, you should consider who your key employees/senior management team are and how might they be motivated to stay within the business once the ownership has changed, this could involve share options or bonuses. 

For asset sales, if employee contracts are being transferred, then you will need to comply with the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE), as well as any other relevant employment laws and regulations. Our employment team at Smith Partnership are experienced in advising on best practice regarding TUPE and would be happy to discuss any concerns or questions you may have in relation to these regulations. 

Legal Due Diligence Checklist

It is also helpful to review all your business contracts, leases, agreements, client and supplier contracts, employment contracts, deeds and acquisition documents.

It is beneficial to check you have:

• complete signed copies of any contracts/deeds;
• you know the length of term of any contract/lease;
• you know of any termination clauses e.g. if the contract/licence can be terminated in the event of a change of control;
• you know if any notice has been served;
• you know who the named party on any licence/ lease is; and
• you know of any third party consents that are required to assign or novate any agreements or sell any property over which there maybe security. 

In summary, you should confirm that all your documents are up-to-date and you are able to transfer all the assets you are selling to the buyer.

Handling Business Disputes Before a Sale

If your business has ongoing or potential legal issues this can discourage buyers and reduce the value of your business. Therefore, you should try to identify and resolve any potential liabilities and settle any pending claims or regulatory issues before they are raised in buyer negotiations.

Intellectual Property (IP) Protection

You should ensure that all intellectual property, like trademarks, copyrights and patents, is documented and legally protected. You should verify that ownership of any IP created by and used within the business is clear and not tied to any third parties.

How can we help?

Are you planning on selling your business? At Smith Partnership in Leicester, our team offer a comprehensive range of services to guide you through all aspects the sale process.

Get in touch with our specialist corporate and commercial solicitors today. Contact our team by telephone on 0116 247 2000, complete our contact form, or send us an email via info@smithpartnership.co.uk. 

We also have offices across the East Midlands and Staffordshire with expert corporate and commercial solicitors, in Burton, Derby, Stoke-On-Trent and Swadlincote.