Planning the Sale Of Your Business
Selling your business is a resource, energy and time consuming exercise. The moment of exit is often unpredictable whether due to an unexpected opportunity or change in fortunes. This article is intended to provide business owners with a short overview of the process and some issues which are worth addressing before embarking on it. I have assumed that the business in question is incorporated and that the sale will be of the shares rather than the assets.
In general, the sale of a business involves agreeing the price and other headline terms, a process of due diligence conducted by the buyer with a view to getting as much clarity as possible on what they are acquiring and a formal share purchase agreement.
Once the deal has been agreed in principle, heads of terms will usually be prepared. As this document certainly ought to be expressly subject to contract, close attention will not always be paid to its drafting and legal advice is often not sought at this stage. However, this may prove to be a false economy as getting the right structure for the sale, from an accountancy, tax and legal perspective, can avoid mistakes and save time and expense further down the line.
All business sales will involve the buyer conducting financial, commercial and legal due diligence into every aspect of the business, including some you may not previously have given any thought to. In order to make that exercise as smooth as possible, you need to have your paperwork sorted and up to date. There are a number of issues and legal requirements which are regularly overlooked and its not just small companies which do so. The following, amongst others, often require some attention.
• Data Protection; ensure the company is registered as a data controller under the Data Protection Act 1988
• Employees; ensure all employees have been issued with written contracts which include the details prescribed by law
• Self employed contractors; identify all individuals who you consider to be self employed and ensure you have contractual documentation in place with them which reflects this
• Contracts; ensure you have written concluded contracts with all suppliers and customers – an email exchange may be sufficient so long as this provides certainty as to all the agreed contractual terms
• Intellectual property rights; identify who owns the rights in your website and marketing material and the software you use to run this business – don’t assume its yours simply because you paid for the work; you will still need a licence or assignment if a third party was involved
The formal share purchase agreement which gives effect to the sale will be shaped by the heads of terms and due diligence investigations. It will usually include extensive warranties and indemnities as well as a tax covenant. Whether you are the seller or buyer of the business, great care needs to be taken to ensure your position is sensibly protected.
For further confidential advice, contact Claire Ingleby at mb LAW, e-mail firstname.lastname@example.org
Please note this information is for general guidance only and is not intended to be a substitute for specific legal advice.