Selling your business – You have to get it right first time!
Selling a business is often the completion of years of work. It is not something that many owners do more than once. If you’re considering selling your business below are some FAQ’s that may help.
Selling the shares in a limited company or selling the assets and goodwill. Which is best?
For shareholders of a limited company, there is a choice in how their business can be sold. The company (a separate legal entity) can sell its assets and goodwill, or the shareholders can sell their shares in a share transfer.
There are pros and cons to each type of sale for both buyers and sellers. Please see our basic guide to the sale and purchase of a business article.
Selling a Business – How long does it take?
This depends on the complexity of the deal and the parties involved. A typical process for a limited company share sale from start to finish is 3 – 6 months. That said, if there is inclination on both sides and it isn’t too complex, a deal can be done much sooner. For an asset and goodwill sale, the process can be much shorter.
What advisers will I need?
When selling your business, we would recommend involving a commercial solicitor outset of the transaction. There is plenty of preparatory work such as formalising contractual relationships with customers, suppliers and key employees which we will be able to handle on your behalf, whilst keeping you updated with progress. It will be the solicitor’s job to draft and negotiate the sales agreement, ensuring that you are achieving your main aims in the transaction. We will be able to instruct third parties and ensure that everyone involved is working together smoothly and to your specific instruction.
We would also recommend instructing an accountant as they can assist with tax and also the preparation of financial information and analysis for the sale and subsequent due diligence following agreement of a deal.
Selling a Business – how much will it cost?
Fees will generally fall into three categories: accountancy, legal and agent/broker fees. We charge based on hourly rates but offer estimated costs upon enquiry.
What are heads of terms?
Heads of terms are an agreement reached by the parties which set out the main terms of the deal. Once the main points have been agreed, we will set these out in a document and send it to all parties involved in the transaction. If you have an agent or broker assisting, they may draw up the heads of terms.
What is due diligence?
Due diligence is the process where a purchaser will carry out a review of the business. Typically a due diligence process will cover commercial, legal, financial and other – such as tax, IT or intellectual property. It is the buyers chance to understand and explore exactly what they are buying.
Will I have to tell the buyer of any business problems I have?
Where problems within a business exist a buyer may require you to provide warranties. This is not at all unusual. For example, you may be required to provide a warranty that the business is not involved in any legal disputes. If this is in fact untrue, the buyer will be able to sue you for any uncovered loss.
As a seller, you are not normally required to volunteer any information without being asked for it. However, to deliberately make false statements to induce or entice a buyer into the transaction can result in legal action being taken.
What warranties will I need to give?
Warranties can cover financial, legal and commercial matters. They are required in situations where the buyer has no way of knowing the true position of a matter. For example, it is not possible for the buyer to know if the business is involved in litigation or has been threatened with litigation. You would therefore be asked to provide a warranty to say that this is so. A warranty will also be required to guarantee that the financial information that has been provided about the business is true. Understandably, warranties can be numerous and lengthy.
Sellers may also be asked to provide indemnities. These will relate to more specific terms, such as a particular tax liability that the business may need to cover relating to the period prior to the sale.
Will I have any responsibilities or liabilities after the sale?
This all depends on the type of sale which has been agreed and whether you will continue to be involved in the business post-completion. If your role within the company continues, you will have responsibilities associated with your role and as specified in your job description.
If you have provided any personal warranties or indemnities as part of the transaction, these will remain with you. Any liabilities that need to stay with the business will be dealt with accordingly in the sale agreement prepared and negotiated.
Selling my business – what happens on completion?
On completion of the transaction, control of the business and assets will pass to the buyer. If you are leaving the company (and not intending to stay on as a director or an employee), your resignation will normally take effect at the same time.
How we can help?
At Hansells we have a dedicated Commercial team to deal with all types of commercial transactions. Whether you are a large company or a small scale business, we can help. Sometimes the more complex transactions are not necessarily those that involve the greatest monetary value and therefore each case is as important to us. We pride ourselves in taking a client focused approach; we will always make sure you fully understand anything you are being asked to sign and will strive to complete the transaction within your desired timescales and in a cost effective manner.
Hansells is a full service firm who are able to offer care and support.
Please contact our, Kathryn Hirst on 01603 751932, to discuss further.