If you’re planning to sell your business in the near future, understanding the process and making the right preparations now will help ensure the transaction goes ahead smoothly.
You might already have used a business broker to help you find a suitable buyer, in which case you may also have a Heads of Terms in place outlining the most important features of the deal. These terms will specify the price, the nature of the sale and the assets such as equipment and stock that are included or excluded.
We advise taking legal advice before signing the Heads of Terms. Even though they’re not legally binding they establish the expectations of both buyer and seller. For more complex transactions a solicitor will often draft the Heads of Terms.
Contract Of Sale
Based on the agreed terms your solicitor will prepare a contract of sale. At this stage when we act for someone selling a business, we request various documents and information. The purpose of the contract is to establish a clear understanding of the rights and obligations on both sides. Attention to detail at this stage helps avoid delays going forward and disputes down the line.
The buyer’s solicitors will ask a lot of questions about your business before committing to the sale. Information that must be disclosed to the buyer concerns existing contracts with customers and suppliers, employees and their pension schemes, money owed to the business and any liabilities.
If premises are included in the transaction the buyer may require a survey to assess the property condition and services and will submit questions based on Standard Commercial Property Enquiries. They may also request local authority, water, and drainage searches.
Certain obligations fall on the owners of commercial property such as fire risk assessments and management of any asbestos. All this will be picked up in the process.
Much of the due diligence process is focused on evaluating goodwill – an intangible asset that includes branding, relationships, and future sales. This can be a significant element in the sale price.
If your business operates out of leased premises you will probably assign the lease to the new owner. This will require the landlord’s consent and you may be required to act as a guarantor until the end of the lease term.
If the lease is in the name of a limited company rather than an individual business owner the landlord will still require a guarantee from the outgoing tenant and if the lease requires a director guarantee as well.
Contracts of employment may also have to be transferred to the new business owner under TUPE regulations. If you have more than 10 employees, you will need to follow a formal consultation process.
Business Sale Completion
On the agreed date the ownership of the business will transfer from you to the buyer. This will be accompanied by the sign-off of multiple legal documents including the sale of business contract; deed of assignment of goodwill and documents related to the transfer of the premises.
Sales sometimes fall through because the process seems to be stalling over details. Taking legal advice and starting your preparations early helps to ensure the process keeps moving to a successful conclusion.
Thinking of selling your business in the next twelve months? Call PowellsLaw on 01934 623 501