How to sell a business in the UK - legal advice for business owners

Woodfines > Resource Centre > How to sell a business in the UK

Selling a business is a complex and time-consuming process. There are important legal and financial considerations for owners to make, which directly impact the speed, value and proposition of the transaction.

This blog offers valuable insights from Woodfines’ corporate commercial solicitors for UK business owners seeking advice on mergers, acquisitions, and business exits.

Why Sell Your Business?

When starting a new business, the ‘why?’ is vitally important to your business plan, and it’s no different when you’re thinking about your exit strategy, too. Whatever your reasons, whether it’s retirement, new opportunities, financial or personal, it’s important that you consider a number of important questions before you start to prepare for the sales process:

What can you do to prepare for sale and save costs and expenses?
What can you do to enhance the value of your business before you sell it?
How will you manage confidentiality during the sales process?
What is your business worth?
When is the best time to sell your business?
Will you sell the entire business, or retain some of it?
How long will the transaction take?
How will the sale impact the business and any employees?

Appointing the Right Advisors

Getting the right people on board, who will work together both in preparing the business for sale and throughout the sales process, can make or break your business transaction. While it’s possible to sell independently, navigating the complexities of a business sale without professional help can lead to undervaluation, legal pitfalls, and missed opportunities. Advisors are there to help you navigate a smooth sale at the maximum price, with minimum risk. In particular, you will need to appoint accountants and solicitors.

The earlier you appoint your advisors, the more help you will receive with preparing for sale, negotiations and the final transaction. You may also wish to enlist a specialist tax advisor to handle any tax issues involved in the sale, and businesses often need those with expertise in insurance and pensions on board, too.

Be transparent with Woodfines’ legal advisors, who will provide comprehensive support throughout the process, ensuring all legal aspects are meticulously covered and giving you the best opportunity to successfully sell your business.

Preparing Your Business for Sale

Start by reviewing and updating your documentation. Your Companies House records will likely be one of the first places that prospective buyers will go to ‘check out’ your business as well as your website. Directors and secretaries of every company are legally obliged to maintain statutory books (or company registers). These will be requested when a buyer is conducting due diligence investigations and must be reviewed and fully up to date before a sale.

Company compliance with UK GDPR (General Data Protection Regulation), including privacy policies, will also need to be reviewed and updated. We will review all of your documentation to ensure it’s up to date and compliant, and make any necessary recommendations before your business is presented to prospective buyers.

There are other things to consider as part of the preparation for selling a business.

As part of the sale terms, you will be expected to enter specific restrictions on what you can do for a period after the sale. These restrictive covenants are there to protect the goodwill and value of the business for the buyers. It is vital that you fully consider how these may impact your plans for the future.

All existing contracts that the business has, whether with customers, suppliers, employees or licensing of software will need to be reviewed to ensure that they are either transferred to the buyer or noted that they will not be affected by any change in ownership of the business. Failure to identify these issues in preparation for sale will be a material problem in the sale process and cause delays and additional costs. As specialists, Woodfines’ corporate and commercial solicitors will be able to identify issues at an early stage and provide solutions to mitigate any impact.

Intellectual Property is a vital consideration. All copyright, trademarks, domain names and other IP, which are essential for the business to thrive, need to be correctly held so the benefit and value of it remains with the business and there is no conflict post-sale.

The ownership or right to occupy premises or land is often a vital asset to consider in the sale process. Planning, building and health and safety regulations compliance and adherence to covenants and leases all need to be considered.

Should there be any threatened, prospective or ongoing legal proceedings or litigation at or during the sale of the business, these will need to be reviewed by solicitors to provide a path forward to resolution or next steps.

Businesses that have specific regulatory regimes applied to them will need to ensure that any sale does not impact the ability of the business to continue to trade post-sale. This can be involved and complex, and dependent on factors beyond, not known to, or within the control of the seller. Early consideration enables all aspects to be planned for and any potential pitfalls avoided.

Share Sale or Asset Sale?

The sale of a business usually involves either the sale of assets of a trading company or the sale of a private company by share transfer.

With a share sale, the buyer usually acquires all of the issued shares in the company from the individual sellers (shareholders). The sale of these shares transfers the ownership of the company or control of the Company to the buyer. The company as a separate legal entity continues to exist and all contracts it has remain unchanged, subject to any change of control provisions. The business continues as it was, with new owners at the helm.
With the sale of assets, specific assets of the company are sold and usually the business is transferred as a going concern. The buyer acquires the assets needed to carry on the business, for example, freehold premises, the benefit and burden of contracts (subject to them being novated or renewed), plant and machinery and intellectual property. In most instances, all employees transfer to the employment of the buyer on their existing or enhanced terms.This is governed by the Transfer of Undertakings (Protection of Employment) Regulations, which are known as TUPE and which have prescribed processes which must be followed to avoid the risk of claims against the seller and/or the buyer. Each asset must be transferred in accordance with the specific legal requirements for the relevant asset (such as a conveyance for a transfer of freehold land or assignments of leasehold premises).

Selling a UK Business with Property

If the business you’re selling owns a property, you must ensure that it is in a marketable condition and, in the case of a business that has a leasehold property, that there are no existing breaches of the lease and the property has been fully maintained. Woodfines’ commercial solicitors will support and advise on selling a UK business with property, including renewing an expired lease, and checking that a lease is registered at the Land Registry.

Negotiating the Sale of your Business

A non-disclosure agreement (NDA) will need to be drawn up and signed by both parties ahead of negotiations to protect the confidential information you will be sharing with potential buyers and their advisers.

Heads of Terms (also known as Letters of Intent) are usually agreed with the prospective buyer, and should be collectively reviewed and approved by your advisory team. These documents will set out the core terms of a commercial transaction agreed in principle, but which are not legally binding unless specifically provided, and will cover aspects including the agreed price, type of sale, structure and timescales. Buyers will often expect a period of exclusivity to be included in the Heads of Terms, which gives them a fair opportunity to complete the transaction, and there can be liability for costs incurred by the Buyer should you withdraw from the transaction.

Disclosure and Due Diligence

You will be required to disclose all relevant information relating to the business of a financial and legal nature by answering due diligence questionnaires and enquiries and providing supporting documentation which demonstrates that the company or the assets are worth what is being paid and that the business will continue to be successful going forward, This is the process of due diligence and disclosure.

Keeping Woodfines’ legal team informed about any changes to the company or business as you navigate your way through the sales process is essential to ensure that disclosures are made against warranties and indemnities are accurately recorded in the disclosure letter and final acquisition agreement, so that the risk of a claim against the sellers is mitigated as far as possible.

Ready to sell?

Our expert legal advisors are ready to join your team to successfully sell your business. Visit our corporate solicitors page and get in touch with your trusted legal partner today.