Selling a family-owned business is not only a commercial decision. It can affect your family, your employees, your future income, and the legacy you have built over many years.
Before you agree to a deal, you need to understand what you are selling, who has authority to agree the sale, what the buyer will want to check, and what risks may remain after completion.
Family businesses often carry extra layers of emotion and complexity. Some family members may work in the business. Others may own shares but have no daily role. Some may want a clean exit, while others may want to stay involved. These issues should be discussed before a buyer is given too much control over the process.
Taking legal advice early can help you prepare for the sale, avoid disputes, and protect the value of the business.
In This Article
Start by Confirming Who Owns the Business
Before you agree to a deal, you need to confirm who legally owns the business.
This may sound simple, but in family-owned businesses, ownership is not always clear. Shares may have been issued years ago. Family members may have inherited shares. A spouse, sibling, parent, or child may have an interest in the business, even if they are not involved day to day.
You should check the company records, shareholder registers, articles of association, and any shareholders’ agreement.
This helps confirm:
- Who owns shares
- Who has voting rights
- Who must approve the sale
- Whether any restrictions apply
- Whether anyone has a right of first refusal
- Whether all shareholders are aligned
If ownership is unclear, this can delay the sale and weaken your position with the buyer.
Check the Shareholders’ Agreement and Articles of Association
A family-owned company may have a shareholders’ agreement, articles of association, or both.
These documents can affect how a sale can happen.
They may include rules about share transfers, director approval, voting thresholds, pre-emption rights, drag-along rights, tag-along rights, and how disputes are handled.
For example, one family member may not be able to sell their shares without first offering them to other shareholders. In another case, a majority shareholder may be able to require minority shareholders to sell if a buyer wants to buy the whole company.
These terms should be checked before deal terms are agreed.
If you ignore them, you may agree to a sale that cannot legally proceed in the way you expected.
Decide Whether You Are Selling Shares or Assets
One of the first legal questions is whether the sale will be structured as a share sale or an asset sale.
In a share sale, the buyer purchases the shares in the company. The company continues to own its assets, contracts, property, staff arrangements, debts, and liabilities.
In an asset sale, the buyer purchases selected assets from the business. This may include equipment, stock, customer lists, goodwill, intellectual property, contracts, vehicles, or property interests.
The structure matters because it affects tax, risk, liabilities, employee issues, contracts, and the documents needed.
A buyer may prefer one structure. A seller may prefer another. You should get legal and tax advice before agreeing the structure in principle.
Once the structure is written into heads of terms, it can be harder to change.
Prepare the Business for Due Diligence
A serious buyer will carry out due diligence before completing the purchase.
Due diligence is the buyer’s review of the business. They will want to check what they are buying and identify any legal, financial, or operational risks.
This may include reviewing:
- Company records
- Accounts and tax records
- Employees and contracts
- Customer and supplier contracts
- Property leases
- Loans and finance agreements
- Insurance policies
- Intellectual property
- Data protection documents
- Disputes or complaints
- Regulatory issues
- Equipment and assets
- Debts and liabilities
For a family business, preparation matters. If documents are missing, outdated, or inconsistent, the buyer may lose confidence, reduce the price, delay completion, or ask for stronger legal protection.
It is better to fix problems before the buyer finds them.
Review Key Contracts Before You Speak to a Buyer
Contracts can make or break a business sale.
Before agreeing a deal, you should review the contracts that the business relies on. This includes customer contracts, supplier agreements, distribution agreements, finance documents, software licences, and service agreements.
Some contracts may include change of control clauses. This means the other party may need to be told about the sale or may have the right to end the contract if ownership changes.
Other contracts may not be transferable without consent.
This is important because a buyer may assume key contracts will continue after completion. If they cannot, the value of the business may be affected.
Check Your Commercial Lease
If the business operates from leased premises, the commercial lease must be checked early.
The lease may restrict assignment, underletting, change of control, alterations, or use of the property. The landlord’s consent may be needed before the lease can transfer to the buyer or before the buyer can continue trading from the premises.
If the premises are central to the business, this point should not be left until late in the transaction.
A buyer may not want to complete unless they know they can continue using the premises after the sale.
Deal With Employee Issues Early
Employees are often a key part of a family-owned business. Some may have worked there for many years. Some may also be family members.
Before agreeing a deal, you should understand what will happen to the employees.
If the sale is an asset sale, TUPE may apply. TUPE can transfer employees to the buyer automatically, along with certain employment rights and liabilities.
If the sale is a share sale, the employer usually remains the same company, but the company ownership changes.
Either way, employment issues should be reviewed before the deal is agreed.
This includes contracts, pay, benefits, holiday, pensions, disputes, disciplinary matters, grievances, and family members on payroll.
If these points are not handled properly, they can create legal risk and delay.
Protect Confidential Information
Before sharing sensitive business information with a buyer, you should have a confidentiality agreement in place.
During sale talks, a buyer may ask for financial records, customer details, supplier terms, pricing, trade information, staff details, and operational documents.
This information may be commercially sensitive. It should not be shared casually, especially if the buyer is a competitor or may walk away from the deal.
A confidentiality agreement can set rules around how information is used, who can see it, and what happens if the sale does not proceed.
Be Careful With Heads of Terms
Heads of terms set out the main points of the proposed deal.
They are often agreed before the full sale agreement is drafted. They may cover the price, structure, payment terms, assets included, completion date, due diligence, exclusivity, confidentiality, and any conditions that must be met before completion.
Some parts of heads of terms may be legally binding. Others may not be.
This is why you should not treat heads of terms as a casual document. They can shape the whole transaction.
Before signing heads of terms, you should understand:
- What is being sold
- How the price will be paid
- Whether any payment is deferred
- Whether the buyer wants an earn-out
- What conditions apply
- Whether you are giving exclusivity
- Whether you must stay in the business after completion
- What happens if the buyer pulls out
- Which parts are legally binding
Getting advice before signing can help you avoid agreeing terms that later cause problems.
Think Carefully About Deferred Payments and Earn-Outs
Not all business sales are paid in full on completion.
A buyer may offer part of the price upfront and the rest later. This may be called deferred consideration. The buyer may also offer an earn-out, where part of the price depends on the business reaching future targets.
These arrangements can work, but they carry risk.
If payment depends on future performance, you need to know who controls the business after completion. If the buyer changes how the business is run, this may affect whether the targets are met.
The agreement should clearly explain how future payments are calculated, when they are due, what information must be shared, and what happens if there is a dispute.
For family business owners, this is especially important if the sale proceeds are needed for retirement, family distribution, debt repayment, or future plans.
Understand Warranties and Indemnities
A buyer will usually ask the seller to give warranties in the sale agreement.
Warranties are legal statements about the business. They may cover accounts, contracts, tax, employees, property, disputes, debts, assets, intellectual property, and compliance.
If a warranty is untrue and the buyer suffers loss, the buyer may bring a claim.
An indemnity is usually stronger. It is a promise to cover a specific liability or risk. For example, if there is a known tax issue, employee claim, or contract dispute, the buyer may ask the seller to indemnify them against that risk.
Before agreeing a deal, you should understand what warranties and indemnities the buyer may expect.
You should also prepare a clear disclosure process. Disclosure allows the seller to qualify warranties by giving the buyer information about known issues.
Consider Tax Before Agreeing the Price
Tax should be considered before the deal is agreed, not after.
The structure of the sale can affect the tax position for the company and the individual family members selling.
There may be capital gains tax, corporation tax, income tax, VAT, stamp duty, or other tax points to consider.
Family-owned businesses may also need advice on inheritance planning, trusts, gifts, succession, and how sale proceeds will be distributed.
A deal that looks attractive at first may be less attractive once tax is considered.
You should speak to your accountant or tax adviser alongside your solicitor before signing heads of terms.
Manage Family Expectations Before Negotiations Go Too Far
Family businesses can be sensitive because business decisions and family relationships often overlap.
Before agreeing a sale, it is worth having clear internal discussions.
Family members should understand:
- Why the business is being sold
- Who has authority to negotiate
- What price would be acceptable
- Whether anyone wants to remain involved
- How sale proceeds may be distributed
- What happens to family employees
- What legacy matters to the family
- What will happen if the buyer changes the business
These conversations can be difficult, but they are better held before the buyer is involved.
If family members disagree later, this can delay the sale or damage the deal.
Do Not Agree Too Much Too Early
Many sellers are keen to keep momentum when a buyer shows interest. This is understandable, especially if the offer looks strong.
However, agreeing too much before legal advice can cause problems.
You should avoid making firm promises about price, completion dates, employees, assets, property, ongoing involvement, or future support until the legal and financial position has been checked.
Even emails and informal messages can create confusion if they sound too definite.
It is better to make it clear that any agreement is subject to contract, due diligence, tax advice, and formal documentation.
Speak to Onyx Solicitors Before Selling Your Family Business
If you are thinking about selling a family-owned business, Onyx Solicitors can help you prepare before you agree a deal.
Our business solicitors can review your company documents, advise on the sale structure, prepare or review heads of terms, deal with due diligence, and help protect your position throughout the transaction.
For more than 20 years, our business lawyers have provided practical legal advice to business owners across Birmingham, England, and Wales.
Call Onyx Solicitors on 0121 268 3208 or email info@onyxsolicitors.com to book a free consultation.
