Starting the process of selling your business can seem daunting, but it need not be quite as scary if you have started planning in advance. Here are the 10 things that you should check with your professional advisers before you get the ball rolling…

1. Are all the shareholders on the same page?

If you are not the only shareholder in your business, you need to be very clear what each of you is looking to achieve and when. What is the sum that each of you needs to receive from the sale and when does each person want to retire? You may assume everyone is already on the same page but in fact perhaps a younger or older shareholder has different priorities in the context of a deal.

2. Check your Articles of Association and/or Shareholders’ Agreement

If you aren’t the only shareholder and cannot agree on the timing and price of a sale then you may need to consider what happens to break a deadlock. Well drafted Articles of Association or a Shareholders’ Agreement may contain a Drag Along provision: the right for the holders of a specified majority of the shares to compel a sale of any minority shareholdings. In the absence of a Drag Along provision, you may need to consider a sale of your business rather than the shares, or perhaps a hive-down to a new subsidiary (added complexity that perhaps communication under point 1) above could avoid).

3. What about your key team members?

Your key employees may have a very different perspective from you as the business owner –uncertainty, perhaps a new working environment, and a new boss may be unnerving. It may be critical to lock them in if you are going to be able to sell your business for the price you want. Share options under an employee share scheme may need to be designed ahead of the sale, not only to help you, but also from the perspective of the buyer who will want to make sure that your management team are motivated once the deal has completed. After all, it may be those team members who have the client relationships and are key to the integration of the businesses.

If you leave this too late, a tax effective share option may not be possible.

4. Are tax reliefs (particularly Entrepreneur’s Relief) available?

Business owners often assume that a sale of their shares will be at a 10% rate of Capital Gains Tax because of Entrepreneur’s Relief. But this may not always be the case. For tax planning purposes, shares may be held by a spouse or other family member who is not a Director or an employee of your company.

Sometimes it is necessary to structure a sale through a sale of a subsidiary. If that is likely to be the case, you need to check that the Substantial Shareholding Exemption is going to be available, otherwise corporation tax may be payable on the sale proceeds.

5. Transferring assets

There may be assets held by your company that will not be wanted by a buyer or which you will not want to sell. Sometimes a significant asset like a business premises may need to be moved out before a sale can proceed. You will want to think through these issues with your legal and tax advisers in advance.

6. Do you have your key contracts in place?

Ahead of the sale of your business, you need to consider whether key contracts may need to be put in place. A buyer will want to know that there will be continuity of occupation of premises, and they may also want to be sure that key customers and suppliers have signed appropriate contracts.

7. Statutory Registers

The ownership of a limited company depends upon the Register of Members. Sometimes, the register may not have been kept with the necessary attention required. Early on in the sales process the statutory registers of your company should be checked and compared with the public filings at Companies House to ensure no problems arise late in the day which may unsettle your buyer.

8. Preparation of Legal Due Diligence Pack

The well-advised buyer of your business will likely instruct lawyers to undertake a legal due diligence exercise on your business. If this reveals any material issues, the sales process could be derailed, or a buyer may want a reduction in the price. The process of replying to the buyer’s legal due diligence can often be a very time consuming task, as well as a distraction from running your business. It therefore makes sense for you, with help from your legal advisers, to take the initiative and prepare replies to standard legal enquiries even before you have put your company up for sale. You can then provide this information to the buyer, and avoid any disruption to your business. The review, if carried out long enough in advance, will also enable you to rectify any problems and ensures that you have your legal affairs in order.

9. Appointing an adviser

 Often a business owner will themselves look to negotiate a sale of their company. But having experienced independent advisers can be a much better way to proceed. The adviser can provide all important objectivity, help you deal with tricky tasks such as those mentioned in point 8) above, and of course can ensure the proper project management of the process.

10. The Legal Process

Selling a business can be a stressful process, particularly if not properly project managed.

You will want a confidentiality undertaking to be signed by the buyer – make sure you have one prepared.

With your lead adviser, you should be very clear of the legal process to be followed from the time you have an interested buyer in the wings.

For further information, please do not hesitate to contact an Everyman Legal Solicitor on 01993 893620 or email everyman@everymanlegal.com