Business sale or share sale?
Business owners need to be aware of some of the steps they should take when they are thinking about selling their business, it is crucial to get the building blocks in place early in the process.
The first issue is whether to sell the shares or whether it should be a business sale which could be the sale of just certain assets of the business, or all the business assets.
Amongst the key differences in a business/asset only sale is that third party consents may be needed for example, landlord consent in respect of a lease or, various contracts may need consent of the other party so that they can be assigned to the purchaser. Also, if selling a business that has employees, then TUPE regulations will apply meaning that there will need to be a process of informing and consulting employees as to how the sale will affect them.
Broadly speaking, a share sale tends to be easier to implement as each of the assets or contracts do not have to be transferred individually.
Whether proceeding by way of a sale of assets or shares the seller should prepare and at an early stage:
- decide which assets are to be sold or not sold – in detail. Not only does this give both the buyer and the seller clarity but it pre-empts issues arising later in the transaction process. I have seen sales of businesses fall apart or cause last minute irate negotiations between the parties with the seller on the back foot because the seller did not make it clear that he was retaining certain low value assets. One such instance related to the seller’s car which, in the context of the business, sale represented very little value but it soured relations as it arose last minute. This surprised the buyer and the seller (by then extremely keen to get the sale complete) had to agree a last-minute price reduction but this would be unlikely to have been an issue if the seller was clear at the onset. A buyer does not like last minute surprises.
- provide recent financial information so that the buyer can determine the value of the business and, in turn, agree a purchase price. If the last accounts are not recent, the buyer may want sight of management accounts covering the period since the last accounts
- document all contractual arrangements and support services used in the business which the buyer will need to fully operate the business following the sale
- identify issues with the business and ensure these are openly shared with the buyer at the start of the process. It is not a good look if a buyer finds out about these issues at a later stage because it was stumbled across by the buyer or it came to light through the legal process – the buyer can start to doubt the seller.
Moving forward with the transaction, the buyer will want to carry out a due diligence process whereby it investigates the business to enable it to assess the amount of risk in relation to key factors that are important to the ongoing business for example:
- loyalty of the customer base
- potential areas of litigation from any third parties
- relationships with key suppliers
- full details of employees including full employment history and sight of employment contract
- property: there might be a lease that needs checking etc
- obtaining consents to assign important contracts – the buyer will need to understand the detail
Finally, business owners must of course ensure that there is a confidentiality agreement in place before disclosing information and the seller should take advice as soon as possible in the process.
No Obligation Call
If you would like to have a no obligation chat as to how to protect both your business and your family then I am always happy to talk, without obligation:
Tel: 01225 287516 or e mail: jane.latham@lcls.co.uk