Find a Solicitor to

Sell a Business

Selling a business is a significant undertaking that requires careful planning, expert negotiation, and thorough legal oversight. Whether you're planning to retire, start a new venture, or just cash in on your hard-earned success, having a trusted solicitor by your side can make all the difference in ensuring a smooth and profitable transaction.

How can a solicitor help you sell your business?

Expertise and experience

A solicitor with expertise in business sales can guide you through the entire process, from initial valuation to finalising the sale, bringing to the table a wealth of experience in handling the legal and financial complexities involved.

Risk mitigation

Selling a business involves lots of legal documentation and potential liabilities.

A solicitor helps identify and mitigate these risks, ensuring that all legal aspects are covered, and your interests are protected.

Negotiation and structuring

If you're looking to get the most buck for your business, a solicitor can negotiate terms on your behalf and structure the deal to your advantage.

They can also make sure all of your contractual obligations regarding the sale of a business are fair and clear.

At Lawhive, our network of corporate solicitors is dedicated to helping you sell your business with confidence and ease. We offer personalised, affordable legal support tailored to your needs to facilitate a seamless and successful transaction, including:

• Legal advice and representation

• Risk management and due diligence support

• Skilled negotiation and deal structuring

• Ongoing support from valuation to closing.

Contact us today for a free case evaluation and quote for the services of a specialist lawyer to assist you in every step of the sale of your business.

• What are the main steps involved in selling a business in England and Wales?

• How do I work out the value of my business?

• What documentation is required to sell a business?

• What is the difference between selling assets and selling shares of a business?

• How long does it take to sell a business?

• What are the legal requirements for selling a business?

• How can I ensure confidentiality during the sale process?

• What should I expect during the due diligence phase of selling a business?

• What are the tax implications of selling a business?

• How does the transfer of ownership work in a business sale?

• How do I manage the transition for employees after the sale?

• What happens if a buyer discovers issues during due diligence?

• Can I stay involved with the business after selling it?

• How are sale proceeds distributed among shareholders?

What are the main steps involved in selling a business in England and Wales?

To sell a business in England and Wales for whatever reason you are deciding to do so, you need to:

1. Prepare your business for sale

2. Determine the value of your business

3. Market your business to potential buyers

4. Negotiate the terms of the sale

5. Conduct and take part in due diligence

6. Agree to the sale

7. Transfer ownership of your business

As you can imagine, selling a business is not as simple as it looks, so having a solicitor on board throughout the process can support you, and make sure everything is legal and correct.

How do I work out the value of my business?

There are different ways of valuing a business. These include:

1. An income approach based on future earnings potential

2. A market approach that compares your business with similar ones in the market

3. An asset-based approach that considers the total value of your business's assets minus liabilities.

Assess key factors

To determine the value of your business, start by evaluating its:

• Financial performance

• Assets

• Liabilities

• Market conditions

• Future earning potential

Review financial statements

Look at your financial statements, including profit and loss accounts, balance sheets, and cash flow statements.

These documents should provide a clear picture of your business's profitability and financial health.

Evaluate assets and liabilities

In evaluating your assets, make sure to consider both tangible and intangible assets like property, equipment, intellectual property, and brand reputation.

Assessing your liabilities will also help you understand the net value of your business.

Consider market conditions

Look at recent sales of similar businesses in your industry to gauge market trends and valuation multiples.

This can help you understand where your business stands in the current market.

The valuation of your business is a key part of the selling process. As such, it's a smart idea to consult with a professional business valuator or financial advisor to get an accurate and detailed valuation.

What documentation is required to sell a business?

When selling a business, you need to prepare a clear set of documents for a smooth transaction and to provide potential buyers with all the information they need.

This includes:

As well as these, you should prepare confidentiality agreements with the buyer to protect sensitive business information and prepare due diligence documents.

What is the difference between selling assets and selling shares of a business?

When selling a business, you can choose to sell either its assets or its shares. Each method has different legal, financial, and tax implications.

Selling assets

Selling assets involves transferring ownership of individual business assets to the buyer, including equipment, inventory, intellectual property, contracts, and goodwill.

This method is often simpler for buyers as they don't generally assume the company's liabilities as part of this type of sale of a business.

Selling shares

Selling shares involves transferring ownership of the business entity itself. This means the buyer takes over the company with all its assets and liabilities.

This way of selling a business can make the transition smoother for ongoing operations as there is continuity of contracts and employees. However, more extensive due diligence is typically required for the buyer particularly to understand the full scope of liabilities and obligations they'll be taking on.

How long does it take to sell a business?

Selling a business can take anywhere between 6 months to over a year in some cases.

In general, each stage of the business sale process is anticipated to take the following length of time:

• Initial preparation: 1-3 months

• Finding a buyer: 3-6 months

• Due diligence: 1-3 months

• Negotiation and finalisation of sale: 1-2 months

What are the legal requirements for selling a business?

Preparation and due diligence

When selling a business, you should make sure that all financial records are up-to-date. Buyers will likely conduct thorough due diligence as part of the sale, including reviewing financial records, contracts, employment agreements, and any pending legal matters.

As we've mentioned previously, you'll also need to get a professional business valuation to determine the fair market value of your business.

Legal structure and agreements

Before a business can be sold, all owners must agree to the sale. This may involve getting consent from shareholders or partners.

You should also draft a comprehensive sales agreement outlining the terms and conditions of the sale including the purchase price, payment terms, liabilities, warranties, and any covenants.

Regulatory compliance

Depending on your industry, you may need regulatory approvals or licenses to transfer the business to the new owner.

You'll also need to comply with employment laws regarding the transfer of employees. This may involve informing employees, transferring employment contracts, and ensuring continuity of employment rights.

The sale of the business should also not violate any competition laws. This means, in some cases, you may need to notify or seek approval from competition authorities.

Tax considerations

You may need to pay Capital Gains Tax on the profit from the sale of the business and determine if the sale is subject to VAT. Although, in some cases, the sale of a business as a going concern may be exempt.

If selling shares, stamp duty may also be applicable. It is important to understand and comply with these tax requirements.

How can I ensure confidentiality during the sale process?

To ensure confidentiality during the sale process, start by using non-disclosure agreements with all potential buyers and any third parties involved.

These agreements legally bind them to keep all shared information confidential.

Additionally, limit the amount of sensitive information you share initially. You should provide detailed financials and other critical documents only to serious buyers who have signed an NDA.

To support this, you can use a business broker or intermediary to handle inquiries and vet potential buyers, which helps maintain anonymity and control over who gets access to information.

What should I expect during the due diligence phase of selling a business?

The due diligence phase is an important part of selling a business. This is where a prospective buyer looks at various aspects of your business to assess its value, risks, and potential.

This involves the prospective buyer:

• Scrutinising profit and loss statements, balance sheets, and case flow statements for at least the past three to five years;

• Reviewing tax returns and any correspondence with HMRC;

• Reviewing articles of incorporation, bylaws, board meeting minutes, and shareholder agreements;

• Examination of all significant contracts and agreements;

• Verification of ownership and protection of intellectual property;

• Assessment of daily business operations, processes, and systems;

• Detailed inventory count and valuation of physical assets;

• Examination of employment contracts, payroll records, benefits, and compensation plans;

• Market and competitive analysis;

• Risk assessments.

The due diligence phase is comprehensive, as you can see, and can feel intrusive, but the buyer needs to assess the viability and value of your business.

Being well-prepared and transparent through the sale of a business can facilitate a smoother transaction process and build trust with a prospective buyer.

What are the tax implications of selling a business?

When you sell your business, the profit you make (the difference between the selling price and the purchase price) is considered a capital gain and is subject to Capital Gains Tax.

In the UK, the CGT rate can vary depending on whether you qualify for Business Asset Disposal Relief (previously known as Entrepreneurs' Relief), which can reduce the CGT rate to 10% on gains up to a lifetime limit.

If you qualify for Business Asset Disposal Relief, you can pay a reduced CGT rate of 10% on gains up to £1 million over your lifetime. To qualify, you must meet certain criteria, such as owning the business for at least two years.

And, depending on the structure of the sale, part of the proceeds may be taxed as income. For example, if you sell shares in your company and receive payments over time (installment sales), these payments might be subject to income tax.

In certain cases, the sale of a business may involve VAT. If you sell the business as a going concern (where the business continues to operate under new ownership), the sale might be exempt from VAT.

Given the complexity of tax laws, it's advisable to consult with a tax advisor or accountant who can provide tailored advice based on your specific circumstances. They can help structure the sale to minimise tax liabilities and ensure you meet your tax regulations.

How does the transfer of ownership work in a business sale?

Initially, the buyer and seller agree on the terms of the sale, which are detailed in a letter of intent or heads of terms.

This document outlines the key points of the sale, such as the purchase price and payment terms.

The buyer then conducts due diligence and when this is completed, a formal sale agreement is drafted. Both parties review and negotiate the agreement to make sure it accurately reflects the agreed terms.

On the closing date, both parties sign the sale agreement, and the buyer pays the agreed purchase price.

The transfer of ownership typically involves transferring the business's assets, such as inventory, equipment, and intellectual property, to the buyer. Additionally, the seller hands over all necessary documents, such as titles, deeds, and any required regulatory approvals.

The buyer then takes over business operations, which includes updating registrations, licenses, and permits to reflect the new ownership. Employees, suppliers, and customers are informed of the change in ownership.

After the sale, the seller may need to fulfill post-sale obligations outlined in the agreement, such as non-compete clauses or providing training and support.

The final step is to settle any outstanding debts and distribute the sale proceeds according to the agreed terms.

How do I manage the transition for employees after the sale?

It is good form to tell employees as soon as possible about the sale of the business and clearly explain how the transition will affect their roles, responsibilities, and job security. This can help reduce any uncertainty for them and build trust.

You could also set up a forum for employees to ask questions and express their concerns about the sale through meetings, Q&A sessions, or one-on-one discussions. In the forums, address their concerns honestly and provide as much information as possible about the new ownership, any changes in policies, and their future within the company.

What happens if a buyer discovers issues during due diligence?

If a buyer discovers issues during due diligence, they may renegotiate the terms of the sale of the business, such as lowering the purchase price to account for the identified problems or requesting that the seller address the issues before completing the sale.

In some cases, the buyer might request warranties or indemnities to protect against potential future liabilities.

If the issues are significant and can't be resolved, the buyer may withdraw from the deal entirely.

This step is often covered by a due diligence contingency in the purchase agreement, allowing the buyer to back out without penalties if major problems are found.

Can I stay involved with the business after selling it?

You may be able to stay involved with the business after selling it, depending on the terms negotiated with the buyer.

Common ways to remain involved include taking on a consulting role, where you provide expertise and guidance during the transition period.

Another option is to stay on as an employee or in an advisory position, which can help ensure continuity and stability for the business.

How are sale proceeds distributed among shareholders?

When a business is sold, the proceeds from the sale are shared among the shareholders based on their ownership stakes and the terms outlined in the company's articles of association and shareholder agreements.

Here's how it works:

1. Before distributing proceeds to shareholders, the business must first pay off debts, taxes, and any other financial obligations.

2. If the company has issued preferred shares, preferred shareholders are paid first, up to the amount specified in their preferred stock agreement.

3. The remaining sale proceeds are distributed among common shareholders, usually proportional to the number of shares each shareholder owns.

The distribution process can be influenced by specific terms outlined in shareholder agreements. Such as provisions for vesting schedules, liquidation preferences, or other conditions that affect how and when shareholders receive their share of the proceeds.

How can Lawhive help me sell my business?

Here at Lawhive, our expert corporate solicitors can support you with your business sale by guiding you through:

• Preparation and documentation

• Business valuation and negotiation

• Drafting and reviewing contracts

• Compliance and due diligence

• Transition support

Contact us today to get started.