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July 14, 2022
Founding, scaling, and selling a business is a feat. From building robust foundations, to claiming a space within the market, the task of maximising a company’s value is a tricky one. That task becomes all the more illusory when at the final hurdle: preparing to sell your business.
How do you go about selling your business? How do you navigate legal hurdles? And how do you get the most value for something you’ve worked so hard to build?
In this article we’ve broken down how to sell a business in eight steps, from finding a buyer to conducting due diligence, to completion. To get you started, we’ve also prepared a quick infographic of the A to Z of selling your company.
So, where do you start?
The first step to selling a business is to find a buyer. This could be someone you already know, such as a competitor, a third party you already do business with or your management team.
If you do not have a buyer in mind, there are corporate finance advisors who can assist with valuing your business, preparing your business for sale and locating potential buyers. Next up..
Once you have found a potential buyer, the next step will be to discuss and negotiate the key terms of the deal. The transaction structure will usually be informed by the parties’ tax position and you may need to seek tax advice to confirm the most tax efficient way of implementing a sale. If you are selling a company, you will either be selling the shares in that company or you may agree to sell the company's business and its assets "as a going concern" (i.e. you would sell the company's assets which would enable your buyer to continue the business in its current form, such as premises, stock and IP).
Next, it’s common to set out the key terms in principle in Heads of Terms. Heads of Terms are generally non-binding but they can help to focus the parties’ minds and avoid protracted negotiations when the main transaction documents are drafted. These ordinarily include things like the purchase price, exclusivity provisions, and a proposed completion date.
A buyer will want to know as much as possible about the business they are buying and to check that they are paying the right price. A buyer’s advisers will typically ask questions about different aspects of your business (e.g. employment, contracts, property, IT, finance, tax) in a due diligence questionnaire and ask you to upload supporting documentation to a virtual data room.
The legal documentation required to implement the sale will depend on the structure of the transaction. If you are selling a company, the main transaction document will be a share purchase agreement, whereas if you are selling a business as a going concern, this will be a business transfer agreement or asset purchase agreement.
The main transaction document will contain warranties, which are contractual statements about your business. This would include things such as tax, IP, property, environmental compliance, data protection, contracts, and finance, usually in a schedule at the back of the document. Warranties are a series of statements about a business, for example: a common data protection warranty is that a company has complied with data protection law. If a business owner knows they have breached data protection law, they would need to qualify this statement by setting out in the disclosure letter why this statement is not accurate. If you cannot give the warranties or you need to qualify them, you will need to disclose any qualifications in a disclosure letter. If they are not accurate and the buyer finds out and suffers loss as a result, they can sue the seller for breach of warranty.
Once the legal documentation has been drafted and agreed, it will be circulated for signature by the parties. The respective parties’ legal teams will then agree to date the signed transaction documents, at which time the transaction will become binding. Or in other words, time to crack the bubbly out of the fridge!
At completion, you will usually receive the purchase price (or at least part of it, if the buyer is paying in instalments).
It is common for a seller to provide a handover at completion, or, depending on the terms of the deal, you may agree to continue to work for the business as an employee or consultant for a period of time. In addition, there are usually at least some administrative formalities to complete, such as Companies House filings.
More of a visual-thinker? We've got you.
Selling a business is a monumental milestone, but don’t that milestone dull in a mountain of legal work. We support fast-growth businesses from idea to exit, meaning our team are highly experienced in the steps towards selling a business.
Think you’re ready to sell up? We're the corporate law experts in helping you plan the next route of your journey.
Find out more about our corporate law offering here.