Your checklist to preparing your company for sale

The successful sale of a company can often hinge on getting your house in order in advance. A buyer will want key information as part of their due diligence and if you don’t have that information available it may scupper the deal. Here’s our checklist of what you should consider.

For the purposes of this article, we’re using the scenario of a sale of shares in a company. It may well be that the sale of certain assets or your business as a going concern is more appropriate depending on your circumstances and the consideration may vary.

Key information to prepare a company for the sale

As part of the sale process, the seller will be expected to disclose documentation relating to the company to the buyer – these are the key documents that the buyer will expect to see and will need to be ready.

Companies House Documents

• Check that all records and filings on Companies House are up to date
• Do you have copies of all board minutes, special resolutions, share certificates or incorporation documents?
• Are there any statutory books for the company? This will be a record of all information relating to the history of the company which the buyers will need sight of for the due diligence and disclosure processes.

Employment Terms

• Decide who are your vital employees and create a schedule of all employees who work in the business. Are some likely to leave as a result of the sale of the company?
• Check all employment contract terms i.e. any benefits available, notice periods, post-termination restrictions.
• Are there any pending employment disputes that may affect the sale which will require settlement?
• The employees transferring across as a result of the sale may be subject to TUPE – seek advice from a specialist employment lawyer.

Key Contracts

• Check any contracts you have with core suppliers and customers. Will the deal be dependent on these remaining in place? How long are these contracts in place for?
• Check any termination provisions or change of control clauses. Will the consent of the other party be required for the sale to take place?
• Are there any payment terms in place in the event of early termination of any contracts?

Property & Licenses

• Leases – check any expiry dates, rent review clauses or any key clauses. There may be a change of control provisions here. Will the landlord need to be involved in the sale process? Are there any restricted uses of the property?
• Ensure that you hold all key licenses required for the company to carry out business and know the expiry dates i.e. is the business regulated by the FCA? Check timings to obtain their consent for the sale to take place.

Deal Structure

Once you have the essential paperwork in place it’s time to think about the deal structure. Also, consider the timings and how this may affect the completion date of the deal.

Price

• Clearly assess the structure of a deal you are willing to enter into. For a straightforward share sale, following completion, the only change will be the owners of the shares in the company. The buyer will purchase the shares of the company with all assets and liabilities. For those looking from the outside, nothing has changed.
• Seek advice from an accountant to assess the valuation of your business based on current and forecasted figures.
• Decide on the structure of payments – would you prefer the cash upfront on completion or would you consider deferred payments?
• Your accountants can assist with the completion accounts process – the price may be adjusted referring to the net assets of the company.

Tax

• Seek tax advice from your accountant early about the most tax efficient structures for your deal.
• Check the tax position for both the company and for you personally.
• Check if any reliefs may be available i.e. Substantial Shareholding Exemption or Business Asset Disposal Relief.

The process of a share sale

• Heads of Terms – these are terms which are agreed at the outset to determine the structure of the deal, the price and any other key matters. Some terms will be legally binding i.e. confidentiality and exclusivity, but some impose a moral obligation to carry out the sale/purchase in good faith. Some terms can be negotiated on.
• Due Diligence – Following agreement of the Head of Terms, the buyer will look to carry out the due diligence process. The buyer will look at all key documentation relating to the company and provide a questionnaire for the seller to complete with their solicitors.
• In conjunction with the due diligence process a Sale and Purchase Agreement will be drafted between the seller’s and buyer’s solicitors. This will include warranties and indemnities for protection should any issues arise following completion of the share sale.
  • Warranty –a statement of fact made by a seller about a particular state of affairs of the company being sold. Should it be found that a statement made is untrue the buyer may claim for a breach of warranty. The seller will be required to give a number of warranties relating to the company including but not limited to the ownership of shares, property owned by the company or commercial contracts.
  • Indemnity – a promise given by a party to repay another party, pound for pound, for a specific loss.
• Disclosure – This provides the seller with the opportunity to disclose against any warranties which are untrue. For example, if a warranty states there are no employment disputes in the company when there are, you can then give details of this. The purpose of this is to provide a seller with protection as a buyer cannot make a claim for breach of warranty for anything that has been disclosed against.
• Once all key documents and ancillaries have been prepared and agreed upon, completion of the sale of the shares can be facilitated.

How We Can Help

The Company & Commercial team at THP Solicitors have many years of experience both buying and selling all types and sizes of organisations. If you are considering purchasing or selling a business, we are experienced at guiding businesses and their management teams from the early stages of negotiation all the way through to completion.

Our corporate solicitors are ideally suited to helping you meet your commercial objectives and will work to identify all the internal and external factors that could influence your activities. We understand that whether you are buying or selling a company, there is often a need to move as quickly without compromising the protections you need.

Contact Sanjay Soni in our Corporate team on E: S.Soni@thpsolicitors.co.uk or T: 01491 570909