Selling your business requires careful planning and attention to legal details. Getting the legal steps right protects you from future liability and makes sure you receive the full value you’re owed. This guide covers the key legal steps in selling your business that you can’t afford to skip.
In This Article
Prepare Your Business for Sale
Get your financial records in order
Buyers will scrutinise your accounts. Prepare at least three years of financial statements, tax returns, and profit and loss records.
Review existing contracts
Check all customer contracts, supplier agreements, leases, and employment contracts. Some may contain change of control clauses that require consent before sale.
Conduct due diligence on yourself
Identify potential legal issues before buyers do. This includes outstanding disputes, pending litigation, regulatory compliance matters, and intellectual property ownership.
Protect confidential information
Use non-disclosure agreements (NDAs) before sharing sensitive business information with potential buyers.
Choose Your Sale Structure
Asset sale
The buyer purchases specific assets like equipment, stock, customer lists, and goodwill. You retain the company structure and any liabilities not explicitly transferred.
This structure often suits buyers because they can pick what they want and potentially avoid inheriting problems.
Share sale
The buyer purchases your shares in the company. They take on the entire business, including all assets and liabilities.
Share sales are often cleaner for sellers because you transfer everything in one go. However, buyers will conduct extensive due diligence to uncover hidden liabilities.
The structure you choose affects tax treatment, so get advice from an accountant before deciding.
Draft the Sale Agreement
The sale and purchase agreement (SPA) is the main legal document. It sets out the terms of the transaction.
Key clauses to include:
Purchase price and payment terms
State the total price, how it will be paid, and the payment schedule. Some deals include earn-out provisions where part of the price depends on future performance.
Warranties and indemnities
Warranties are statements you make about the business. Common examples include confirming financial records are accurate, that you own the assets being sold, and that there are no undisclosed liabilities.
If a warranty turns out to be false, the buyer can claim compensation. Indemnities provide specific protection against identified risks.
Negotiate caps and time limits on warranty claims. You don’t want unlimited liability hanging over you indefinitely.
Restrictive covenants
These prevent you from competing with the business after sale. Buyers typically want non-compete clauses to protect their investment.
Make sure restrictions are reasonable in scope, geography and duration. UK courts won’t enforce overly broad restrictions.
Completion conditions
List what must happen before the sale completes. This might include obtaining regulatory approvals, landlord consent for lease transfers, or customer contract novations.
Handle Employee Matters
TUPE regulations
The Transfer of Undertakings (Protection of Employment) Regulations 2006 usually apply when selling a business. TUPE automatically transfers employees to the buyer on their existing terms.
You must inform and consult with affected employees. Failure to comply can result in compensation claims.
Employee liability information
You’re legally required to provide the buyer with specific information about transferring employees at least 28 days before completion. This includes their terms and conditions, disciplinary records, and details of any legal claims.
Pensions
Check whether you have pension obligations that will transfer. Auto-enrolment pensions must continue under the new owner.
Transfer Intellectual Property
Make sure you own or have the right to transfer all intellectual property (IP) the business uses. This includes:
- Trade marks
- Patents
- Copyrights
- Domain names
- Proprietary software
- Trade secrets and know-how
If employees or contractors created IP, check their contracts to confirm ownership sits with the company.
Document all IP transfers clearly in the sale agreement. Register transfers with relevant authorities where required, such as the Intellectual Property Office for registered trade marks.
Obtain Necessary Consents
Landlord consent
If you lease your premises, check whether the lease allows assignment or subletting to the buyer. Most commercial leases require landlord consent.
Lender approval
If you have business loans secured against assets, lenders may need to approve the sale.
Third-party consents
Review contracts with suppliers, customers and partners for change of control clauses.
Regulatory approvals
Some sectors require regulatory consent before ownership changes. This includes financial services, licensed premises, and healthcare.
Tax Planning
Capital Gains Tax
Selling your business triggers Capital Gains Tax on the profit. Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) can reduce the tax rate to 10% on qualifying gains up to £1 million.
Corporation Tax
If you’re selling assets through a limited company, Corporation Tax applies to any gains.
VAT
Selling a business as a going concern can be VAT-free if certain conditions are met. Otherwise, VAT may apply to individual asset sales.
Get specialist tax advice early. The right structure can save you significant money.
Complete the Sale
Exchange of contracts
At exchange, both parties sign the sale agreement and it becomes legally binding. The buyer typically pays a deposit.
Completion
This is when ownership actually transfers. The buyer pays the balance of the purchase price and you hand over the business.
Exchange and completion can happen simultaneously or on different dates, depending on what conditions need satisfying.
Post-Completion Obligations
Handover period
You may need to stay involved for a transition period to help the buyer. Define expectations clearly in the sale agreement.
Escrow accounts
Part of the sale price may be held in escrow to cover potential warranty claims. Understand the conditions for releasing these funds.
Documentation
Keep copies of all sale documents. You’ll need them for tax purposes and to defend against any future claims.
Common Mistakes to Avoid
Not getting professional advice
Selling a business involves legal, tax and financial complexity. DIY approaches usually cost more in the long run.
Poor preparation
Buyers will walk away if they find problems during due diligence. Address issues before going to market.
Weak negotiating position
Understand your leverage. Don’t agree to unreasonable warranties or restrictions just to close the deal.
Ignoring employees
TUPE failures can derail sales and trigger claims. Consult properly and provide required information on time.
Get Expert Help
Selling your business is likely one of the biggest transactions you’ll make. A solicitor specialising in business sales will guide you through the process, draft and negotiate agreements, and protect your interests throughout.
Start planning early, get the right advisers on board, and take time to understand what you’re signing. The legal steps in selling your business may seem tedious, but getting them right means you can walk away with confidence and the full value you deserve.
Your Next Step
Contact us today at 0121 268 3208 or via email at info@onyxsolicitors.com for a FREE consultation. Let us help you achieve the peace of mind that comes with having expert legal support on your side.
