Four steps to preparing your company for sale

Some key steps can be taken in advance to ensure that when the sale process commences, it runs as smoothly as possible and enhance value to the buyer.

1. Appoint the right team

Make sure that your solicitors, accountants, and other professional advisers have a detailed understanding of your business and your long-term goals. Furthermore, ensure that they have the experience to handle your sale to avoid any potential pitfalls.

2. Make use of the various tax reliefs

In an asset purchase, the selling company is taxed on the consideration paid by the buyer. By contrast, on a share purchase, the proceeds of sale are paid directly to the company's shareholders, which may result in a lower tax liability.

Whether an asset sale or a share sale, how the sale is structured will vastly impact how you are taxed on the sale proceeds. Tax should therefore be considered before the sale takes place, and you should talk to your accountant or tax advisor at the earliest opportunity.

Points to consider are:

• Business Asset Disposal Relief (BADR) – formerly known as entrepreneurs' relief. In short, BADR enables shareholders to pay a lower rate of capital gains tax subject to certain criteria.
  
   
• Capital Gains Tax – is a tax on the profit when you sell (or dispose of) something that's increased in value. It is rumoured that this may increase, so sellers should be wary.
  
   
• Estate Planning – personal estate and wealth planning can impact the transaction structure, and proper tax advice should be sought.

3. Lock in key staff and put employment contracts in order

It is essential to a buyer that the business can succeed without the seller. Therefore, it is worth the time and attention to put a core group of employees or management team in place who will cope after you have left the company.

Other things to consider:

• Are your employment contracts up to date?
• Have you maintained your training records?
• How old are the company's policies, and do they need updating?
• Do you have a staff handbook?
• Do your contracts have the necessary clauses to protect the business (e.g., non-compete provisions)?

Just like selling a house, first impressions count. Having these in place will look good to a potential buyer (where employment issues are typically a key concern). At the end of the day, a buyer does not want to inherit someone else's problems. 

4. Ensure your business records and company administration are in order

It is important to check whether you corporate record-keeping, filings, and general corporate compliance are up to date. You must also make sure that your records are available for when the buyer's due diligence commences.

In particular, the company's statutory registers (e.g. the register of members) will be carefully reviewed by a buyer's advisors. Any material discrepancies or issues are likely to need rectification as part of the sale process (if they have not already been addressed). This could lead to sale proceeds being held back by the purchaser and/or the vendor(s) having to indemnify the purchaser regarding any related liabilities.

Other areas of interest to the buyer will be:

• commercial contracts;
• company records, such as the corporate records mentioned above, but also employee contracts, policies and handbooks;
• property deeds;
• disputes and potential litigation;
• consents and compliance with regulations; and
• intellectual property.

Contact our corporate solicitors

Get in touch to discuss how our corporate and commercial solicitors can help with your company sale. Our team can help you negotiate and structure a deal to give you the best possible outcome.

We have solicitors in London, Brighton, Eastbourne, Hastings, and Uckfield, and we work with clients across the UK.