If you own a business, you might be wondering how you might fully \u2018unlock\u2019 its value. In many cases, selling your business to a buyer is the most efficient way to realise a return on your invested money. A private equity transaction is where the original owner of a business sells a substantial portion of their shares in the business to an investor. As part of the transaction, the investor buys the shares with the intent to later sell the business for a profit. This article will explain the fundamentals of a private equity transaction in England, and identify the critical legal issues you should consider.<\/p>\n\n\n\n
At its most basic, a private equity transaction involves the transfer of legal ownership rights (equity<\/a>) in the business from the original owner to the buyer. This is most commonly done through a share sale<\/a>.<\/p>\n\n\n\n Often, the buyer in a private equity transaction will be an investor looking to acquire a stake in the business. These investors aim to later sell their stake in the business at a significant profit. This differs from other buyers, such as a competitor looking to acquire your business to integrate it with their existing one. <\/p>\n\n\n\n Furthermore, most private equity transactions tend to be quite large: both in terms of the value of the deal and the portion of ownership in the company. Likewise, the investor usually intends to acquire a majority stake in the business, often at more than 75%. In many cases, the buyer will acquire 100% of the shares in the business<\/a>. <\/p>\n\n\n\n Lastly, the transaction will usually involve a fairly complex structure. Since most private equity transactions take place as share sales, you may need to restructure the business. As this is a complex process, your transaction team will likely work closely with you when structuring the deal. <\/p>\n\n\n\n There are several legal implications associated with a private equity transaction. <\/p>\n\n\n\n Depending on the portion of shares the private equity investor acquires in your business, you may or may not have any rights as a shareholder once the transaction completes. This is because when you sell all of your shares, your connection to the company as a shareholder<\/em> ceases. Nevertheless, you may owe certain personal obligations to the buyers after the transaction completes. <\/p>\n\n\n\n It is not uncommon for you to retain a small portion of shares in the business. Where you retain shares, you will become a minority shareholder. Usually, this means you have few rights other than those attached to your shares. For example, the right to receive dividends and participate in shareholder meetings.<\/p>\n<\/div>\n\n\n\n The transaction will be executed through a contract called the sale agreement (or the purchase agreement from the buyer’s perspective). The sale agreement will outline the rights and obligations of both parties. <\/p>\n\n\n\n You should note that as a seller, you will almost always have personal liability to the private equity buyer if any statements you made during the transaction turn out to be incorrect or misleading. You can be personally liable regardless of whether you were unaware or did not intend what you said when you gave the statement.<\/p>\n<\/div>\n\n\n\n Additionally, you may need to provide additional payment or pay back some of the purchase money if specific performance targets are not met after the sale completes. Your legal team will also negotiate this with input from the accounting and corporate finance team. <\/p>\n\n\n\n Your obligations after the sale will depend almost entirely on the terms of the sale agreement. However, as a general rule, the buyer will seek to keep you in your capacity as the previous owner for as long as possible after the sale finalises to facilitate the business\u2019 performance. Therefore, it is in your interest to limit the extent and length of your liability. <\/p>\n\n\n\n Nevertheless, as the founder of the business, you may still be directly involved in the day-to-day management of the business after the sale completes. Hence, the sellers may require you to enter another service contract as a director or senior manager. This will create a set of parallel obligations in addition to those arising from the sale contract. <\/p>\n\n\n\n\n\n Continue reading this article below the form\n <\/i>\n<\/a>\nLegal Implications<\/h2>\n\n\n\n
Rights as a Shareholder<\/h3>\n\n\n\n
Contractual Considerations <\/h3>\n\n\n\n
Post-Sale Obligations <\/h3>\n\n\n\n