The choice to sell a business is not one that should be taken without careful consideration, whether it is the result of years of effort in establishing the business or a desire to explore other opportunities.
The preparation of a successful exit strategy necessitates extensive planning in order to optimise the valuation and identify an appropriate buyer for the business transfer. The process of transferring business ownership gives rise to several legal and tax considerations and in this article, Advice On Selling A Business, we take a look at the process and mechanism involved
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For a free initial discussion with a member of our New Enquiries Team, get in touch with us today. We are experienced in dealing with all the legal aspects of selling a business, and once instructed, we will review your situation and discuss the options open to you in a clear and approachable manner. Early expert legal assistance can help ensure you are on the best possible footing from the start and also avoid the stress of dealing with these issues on your own. Simply call us on 0345 901 0445 or click here to make a free enquiry and a member of the team will get back to you.
Are there different ways to sell a business?
Given that the majority of businesses operate as private limited companies, the intended purchaser would typically acquire your company’s shares through a share sale. An alternative course of action for your organisation would be to sell its business and assets in exchange for the purchaser assuming all or a portion of its liabilities. The term for this transaction is “business sale” or “asset sale.”
You could also operate your company as a limited liability partnership, sole trader, partnership, or under another form of corporate vehicle. We can also provide you with advice regarding the sale of your interest in those entities, which is governed by comparable legal sale principles and processes.
The optimal deal structure for a sale is contingent upon the specific circumstances of the transaction, and various legal, commercial, financial, and tax factors can impact the parties’ decision.
How do you know what your business is worth?
A business comprises more than its physical assets and a potential buyer will be looking at your employees, revenue, liabilities, and reputation, which can complicate the price-setting process. Despite the fact that there is no universal method for valuing a business, there are a number of approaches that can be utilised to approximate its market value.
The profit multiplier method, also referred to as the price to earnings ratio, is a widely employed approach in the field of valuation. This procedure provides a potential purchaser with an indication of the likelihood that they will recoup their investment within a specified time frame through an evaluation of your company’s annual profits.
You must take into account various factors, including the future of your staff. What property do you own? If it is leased, you will almost certainly require permission from the landlord. What current obligations do you have? Which ongoing contractual obligations can be assigned or terminated in accordance with the terms and conditions?
You, as a limited liability company, must decide between conducting an asset sale and a share sale. Not least among the substantial distinctions between the two approaches is the impact on the amount of tax that must be paid. Obviously, a potential purchaser may hold a different perspective on this as well.
Achieving a sensible valuation is the ultimate goal. Avoid underestimating the value of the work you have put into the company; conversely, overestimating its worth may impede your ability to find a customer willing to pay the appropriate price.
Regardless of the price you ultimately set, you must be capable of justifying your assessment to prospective purchasers and be ready to engage in negotiations. There are independent professionals who can assess the value of your company and provide you with an expert opinion if you are uncertain. This is especially advantageous for businesses that operate in a specialised sector or cater to niche markets.
How do you prepare for a sale?
For optimal results, a sale must be meticulously organised and prepared for.
A sale may require weeks or even months of preparation time. Furthermore, prioritising the preparation of your business for a sale prior to going to market may enhance the likelihood of securing a buyer, shorten the duration of the transaction, positively influence the price a buyer is willing to pay, mitigate your liability under the terms of the sale agreement, and potentially determine whether a transaction is successful or unsuccessful.
During the vendor legal due diligence process, an experienced solicitor will examine particular facets of your organisation from a legal standpoint and identify those that necessitate corrective measures prior to initiating the sale procedure. Examples include verifying the accuracy of your organization’s Companies House filing history, the availability and condition of your statutory books and registers, the precision and accounting worthiness of all share certificates and shareholder registers, and the presence of unequivocal proof of your ownership of the shares you intend to sell. Additionally, we can verify the Company’s compliance with commercial agreements and its ability to provide proof of ownership for its intellectual property, including registered trademarks, computer programme source codes, and website domain names.
Advertising the business and finding a buyer
A business broker can assist you in finding the ideal purchaser and promote your company via appropriate channels. When selecting an agent to sell on your behalf, exercise extreme caution at all times; verify them meticulously and read their terms and conditions.
During this phase, it may be prudent to implement measures to safeguard confidentiality and prevent competitors from digging into your business. Additionally, you may wish to prevent your team from learning about the transaction prior to discussing it with them; they may become concerned about their job security and begin searching for employment elsewhere. By avoiding such situations, speculation regarding the company’s future will be reduced.
It is imperative to conduct thorough due diligence on the prospective vendor prior to entering into any contractual obligations. This could include seeking references and doing credit-checks.
Finalising the sale
Ensure that all parties have a comprehensive understanding of the terms. This may encompass the asset or price involved, as well as the date of ownership transfer. This decreases the likelihood of any potential misunderstandings in the future.
Are you receiving full payment? In the case of an instalment payment arrangement, what are the consequences in the event of a customer default? How protected are you in the event that this occurs? Your solicitor will be able to advise you on this.
You should review the partnership agreement prior to selling a partnership or a portion of the partnership if this is the structure of your business. You may be required to comply with any restrictions and conditions pertaining to the sale.
Ultimately, the vendor acquires ownership of the business pursuant to the sales contract. It should contain the agreed-upon terms, price and date of completion.
How we can help
We have a proven track record of helping clients deal with the process involved in selling a business. We will guide you diligently and ensure all checks are carried out swiftly and efficiently and we firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting. You can read more about the range of corporate services we offer by clicking here: https://blackstonesolicitorsltd.co.uk/corporate-legal-services/
How to Contact Our Corporate Solicitors
It is important for you to be well informed about the issues and possible implications of a business sale. However, expert legal support is crucial in terms of ensuring a positive outcome to your case.
To speak to our Corporate solicitors today, simply call us on 0345 901 0445, or click here to make a free enquiry. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.
Disclaimer: This article provides general information only and does not constitute legal advice on any individual circumstances.
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