Sonya Bassett, Partner and Head of Corporate and Commercial at Coodes Solicitors, describes the ten key steps of selling a business.
Whether you are a sole trader or run a large multi-national company, selling your business is a lengthy process with several stages. While every sale is different, the process can be split into ten key steps.
There are two different ways you could approach the sale of your business: a direct sale to the buyer or an auction sale. The approach you take will depend on a number of factors, including the target timescale for the sale, the level of interest from potential buyers and the structure of the business.
The make-up of the team that works on a sale can vary considerably. However, it will probably include members of the senior team, a corporate lawyer, a commercial property lawyer, an employment lawyer, any other specialist legal advisors and your accountants.
There are, essentially, two ways to sell your business. One is to sell shares of the limited company that owns the business, so its assets, liabilities and obligations are also acquired by the buyer. The other is to sell the assets that make up the business, so the buyer just takes on the assets it wishes to purchase together with any agreed liabilities and obligations. If you are selling a sole trader or partnership business this will be an asset sale.
Before starting negotiations, you may need to sign a variety of agreements. These can include a confidentiality agreement, exclusivity agreement, and heads of terms, setting out the terms of a commercial transaction agreed in principle between both parties.
At this stage it is advisable to seek a lawyer’s help with drafting these agreements. Otherwise, you could agree in principle to something that causes you to lose your bargaining power or give away or commit you to unrestricted ongoing liabilities.
Establishing who owns the various business assets can prove complex and time consuming. For example, do you own all the Intellectual Property (IP) that you wish to sell? A designer may have created your website or logo and the IP rights contained within the documents or website have not actually been assigned effectively. With IT, it is often the case that the seller does not own all the software but must be able to produce the licences in respect of all software and equipment used.
You will need to establish whether your commercial premises are freehold or leasehold, if there are registered charges or any other impediment to the sale such as necessary third-party consents.
If you are a limited company it is important to check your articles of association and any shareholders agreement to ensure that you are able to sell and have got consents and approvals in place. You will also need to carefully check any commercial contracts and title ownership of assets to make sure that you are aware of any other consents or approvals that may need to be put in place prior to completion of the transaction.
The due diligence process is a commercial, legal and financial investigation of the company in preparation for a sale.
The buyer will carry out detailed due diligence prior to a purchase. This can be time-consuming, depending on the level of investigation, so you need to be prepared by having the right team in place to handle the enquiries. It is important for the seller to carry out financial checks on the potential buyer to ensure that they have financial ability to make the purchase.
If you have heads of terms then you will need to check that all terms are covered by the main contract. The main contract (a share purchase agreement or an asset purchase agreement) will set out the terms of the transaction and also the process, obligations of both parties and how it will all work. Depending on the structure of a transaction, you may need an employment lawyer to help protect you from any claims at the time of completion and transfer of the business or shares.
There will be many issues to consider as part of the transaction, from arrangements for employees and their pensions, to property, environmental issues, IT and IP. You will also need to secure consents and approvals, including from regulatory bodies and from your Board and shareholders if it is a limited company.
Warranties and indemnities relate to the condition of the business and arrangements to compensate a buyer if issues occur following completion. Seek legal advice to ensure that the right warranties and indemnities are in place.
Selling a business is often a complex, and sometimes difficult, process. Having the right team of people to support you through the sale is the best way of ensuring you get the best result.