Our corporate lawyers have extensive experience guiding owners through the process of selling their business. Key issues to consider include :-
Choosing a Sale Structure
There are two main options:
- Share Sale – the buyer acquires the entire or the controlling interest in a company, meaning the buyer will effectively acquire all the company’s assets and liabilities. (Often preferred by sellers for a clean break).
- Asset Sale – the buyer purchases specific assets and assumes any agreed liabilities of the business. Buyers may prefer option this to avoid existing liabilities of the business.
Due Diligence stage
Both share and asset sales involve due diligence, where the buyer thoroughly examines all the details of your business. Due Diligence may be split into the following areas::
- Financial – evaluating the financial health of the business, including taxes, revenue streams, accounts, debts, and borrowing.
- Physical – inspecting any property owned or operated by the business, equipment, and any stock the business might have.
- Legal – analysing legal documents such as contracts relating to the business (including key customer contracts and key suppliers), employment contracts and records, intellectual property rights and documentation and property leases. Also buyers will check for compliance with UK and other applicable law, including data protection, health and safety, government regulations pertaining to the business sector, amongst others.
A comprehensive non-disclosure agreement (known as an ”NDA”) will normally be in place prior to commencement of the due diligence exercise, to ensure that the business information exchanged during the due diligence is protected and so that trade secrets and business confidentiality are maintained.
Our team can help you manage due diligence by:
- Collating documents – gathering all necessary information for review by the buyer and their advisers.
- Virtual Data Rooms – setting up and providing secure online access for the buyer and their advisers to review documents.
- Responding to enquiries – we will assist in responding to the buyer’s legal questions about the status of the business.
The Legal Documents and Stages of a Sale
- Heads of Terms (Optional) – outline key terms such as price and the structure of payments, the completion date, and any additional conditions relating to the sale. The Heads of Terms are generally non-binding on the parties, but confidentiality obligations and exclusivity periods can be drafted to be legally binding within the Heads of Terms.
- Share Purchase Agreement (SPA) or Asset Purchase Agreement (APA) – this is the main contract, detailing the agreed terms and conditions of the sale.
- Warranties and Indemnities – the warranties are promises made by the seller about certain aspects of the business. The warranties are typically setout in a schedule to the SPA or APA. These protect the buyer by ensuring the seller’s representations about the business are accurate.
- Disclosure Letter – lists the information which conflicts with the warranties set-out in the SPA or APA. It is used to provide protection to the seller from claims made by the buyer regarding potential breaches of the warranties. It is crucial for the seller to provide “full and fair” disclosure in preparing the disclosure letter.
- Ancillary Documents – there will be additional documents, depending on the specific agreed terms, for example, the seller may have a consultancy arrangement with the buyer after completion, or there may be a settlement agreement with an employee who is being made redundant as part of the business sale.
Tax Considerations
- Share Sale – shareholders may be liable for capital gains tax, but relief options like Business Asset Disposal Relief might apply.
- Asset Sale – the company itself is taxed on the sale profit and any cash withdrawn as dividends.
- Tax Advice – we liaise with any specialist tax advisers you have or can recommend professionals for your specific situation.
Employment law issues on business sale
- Transfer of Undertakings (Protection of Employment) Regulations (TUPE) – These regulations apply to employee transfers in asset sales (but not share sales), protecting their employment terms under the new owner.
- Employment Expertise – our team can advise on employee related obligations to ensure a smooth transition.
- Restrictive covenants and retaining key employees – these are used to protect the buyer from the seller(s) or the company’s key employees starting a competing business or poaching existing clients or employees after the sale.
Branch Austin McCormick – Your Trusted Partner in Selling Your UK Business
Our team has the experience and expertise to guide you through every stage of selling your business. We’ll work closely with you to achieve a successful outcome that meets your goals.
Contact us today for a consultation.
