Summary
- When selling a business in the UK, owners must address key legal areas including due diligence, asset versus share sales, warranties, and post-sale restrictions.
- A well-drafted sale agreement protects both parties by clearly setting out the terms, liabilities, and any conditions precedent to completion.
- Sellers should be aware of their ongoing obligations, such as restrictive covenants and tax implications, which can affect the value and structure of the deal.
- This article is a plain-English guide to the legal process of selling a business in the UK, aimed at business owners and directors.
- It is produced by LegalVision, a commercial law firm that specialises in advising clients on business sales and acquisitions.
Tips for Businesses
Agree on a clear deal structure early – asset or share sale – as this affects tax, liability, and contracts. Prepare disclosure documents thoroughly to limit warranty claims. Negotiate restrictive covenants carefully, as overly broad clauses may be unenforceable. Instruct a solicitor before heads of terms are signed.
Selling a business is one of the most significant decisions a business owner can make. The method you choose will shape the outcome, your financial return, and your ongoing involvement. This article will explain some of the different ways you can sell your business and touch on which deal structure might be best for you, depending on your motivations.
Different Ways of Selling Your Business
There are several options you can undertake when selling your business, including:
- third party sales;
- asset sales;
- management buyouts; and
- private equity purchasing.
Third Party Sales
A third party sale is when you sell your business to another person or business. Typically, this type of sale is a share sale. You will sell your shares in the company to the prospective buyer, who will inherit all of the rights that come with those shares. However, the structure of a share sale will depend on the size of your business and to whom you have issued shares.
Asset Sales
An asset sale is when you sell the assets of your business, including:
- physical property, such as equipment, stock, and land; and
- intellectual property, such as trade marks and copyrights.
In an asset sale, you can remain the legal owner of the business since you are only selling certain business assets. In this sense, selling business assets can be a good way of freeing up some cash or getting rid of property that your business no longer benefits from while still retaining ownership in the business.
Management Buyouts
A management buyout is when the managers of your business acquire the business assets you own. Management buyouts are common when business owners want to sell their business so that they can retire.
In this type of sale, you may wish to try to retain an equity share in the business for yourself. Managers will likely know how to keep running the business as it was before. This means that if the business were profitable, it would likely continue to be profitable. However, this will depend on whether you trust the management team that will take over from you.
Private Equity
Selling your business to a private equity fund can be a good way of raising additional funds to expand and grow your business. Private equity funds will typically make sales between each other to sell a company for more money than they bought it for. This means they have an incentive to try to increase the value of your business.
Selling your business involves a number of moving parts. This fact sheet will provide an overview of the sale of business process and
the documents you need to make an effective sale.
Considerations When Selling Your Business
On the whole, how you sell your business will depend on your aims and goals for your business. Some methods can help you raise funds, while others can help you exit your business on the whole. If you are going through a sales process, it is a good idea to seek professional legal and commercial advice on how best to sell your business. Additionally, you can make a better decision by setting clear goals and determining how much of your business you want to sell.
1. Setting Clear Goals
Before you look for prospective buyers and get a business valuation, you will first want to set clear goals for your business sale. Ask yourself why you are selling your business in the first place? The answer to this question can help you decide what selling method to choose.
For example, if you are selling your business because you are not happy with its financials, then the expectations will be different if you sell only parts of your business to make profits. Ultimately, knowing the industry, you are operating in will also help you understand your options regarding who you can sell to and when is the right time to do so.
2. Decide How Much of Your Business You Are Selling
When selling your business, you can sell all of it or parts of it. Complete sales are common in small businesses, and it involves passing complete ownership to a purchaser. This typically means that you are not involved with the company at all.
However, you could also pursue a partial sale. This is when you sell only a part of a company, and it usually involves a sale of:
- assets;
- shares; or
- a specific aspect of your business.
For example, keeping shares can help you keep an equity stake in the business, which can be useful if you trust that the company might be worth more in the future. However, keeping shares in the business can also mean a buyer pays less for the business given you still retain some ownership.
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Key Takeaways
You may want to sell your business at some point as a business owner. When starting the sales process, setting your goals and motivations is important. Then, you can look at the different methods for selling a business and decide what is best for you. Some common methods include asset sales, private equity buyouts, management buyouts, and share sales to a third party.
LegalVision provides ongoing legal support for businesses through our fixed-fee legal membership. Our experienced business sale lawyers help businesses manage contracts, employment law, disputes, intellectual property, and more, with unlimited access to specialist lawyers for a fixed monthly fee. To learn more about LegalVision’s legal membership, call 0808 196 8584 or visit our membership page.
Frequently Asked Questions
An asset sale is when you sell your business’ assets. Assets can include physical property, such as land and equipment, and intellectual property.
A management buyout is when your business’ management acquires the business from you, the owner.
Yes, a business valuation helps you determine a fair sale price by assessing your assets, revenue, and market position.
You typically need a sale agreement, financial statements, employee contracts, and any relevant licences or intellectual property registrations.
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