Key steps to Selling your Business

1. Preparation and Due Diligence

One of the first decisions is whether the transaction will be a share sale or an asset sale. In a share sale, the buyer acquires the company and all its assets and liabilities. In an asset sale, only selected assets transfer, with most liabilities remaining with the seller. This choice affects tax, risk, and documentation, so legal and accounting advice is essential. Tax planning should begin early as you may qualify for Business Asset Disposal Relief, reducing Capital Gains Tax on eligible sales.

2. Confidentiality and Heads of Terms

Once a buyer is identified, both parties usually sign a Non Disclosure Agreement to protect confidential information. They then negotiate Heads of Terms, outlining the price, structure, and timetable. Although generally non binding, exclusivity clauses are binding and prevent you from negotiating with others during due diligence.

3. Buyer’s Due Dilligence

The buyer’s advisers will investigate the business thoroughly. You must provide a well organised data room containing financial, legal, and operational documents. The buyer’s solicitors will raise enquiries, and your solicitor manages responses.

4. Drafting and Negotiating the Sale Agreement

The main contract, either a Share Purchase Agreement or Asset Purchase Agreement, sets out the terms of the sale.

Warranties and Indemnities

Warranties are contractual statements of fact about the condition of the business: its finances, contracts, assets, employees and legal compliance. If a warranty proves to be untrue, the buyer may be entitled to claim damages. Your solicitor will prepare a Disclosure Letter alongside the SPA. This letter sets out known exceptions to the warranties you are giving, carving out matters already known to the buyer so that you cannot be held liable for them later.

Consideration and Earn-Outs

The agreed price may not all be payable on completion. It is common in owner-managed business sales for a portion of the consideration to be deferred or contingent on the future performance of the business. This arrangement (earn-out) means that part of what you receive will depend on whether the business hits agreed targets after the sale. Earn-outs can be an effective way of bridging a gap in valuation expectations.

Restrictive Covenants

These are clauses preventing you from setting up a competing business, soliciting former customers, or poaching staff for a defined period after completion. The scope and duration of these restrictions are negotiable, and your solicitor will advise on what is reasonable and enforceable.

5. Employment Law and TUPE

Where there is a business transfers, the TUPE Regulations 2006 usually apply. Employees automatically transfer to the buyer on existing terms, and both parties must inform and consult staff. Specialist employment law advice should be taken by the buying party.

6. Completion and Post Sale Obligations

Completion transfers ownership, with documents signed and payment made. Additional steps may include assigning leases, transferring intellectual property, and updating Companies House.