In this post, we will outline the process of selling your business and describe the typical structure you can expect to follow.

Before any sale can be agreed it is important to market your business in a presentable way. To attract potential buyers, it is crucial to maintain good financial records and prepare all contractual and commercial documents logically. Reviewing your legal documents before a sale can help you amend anything that may be detrimental to your business’s value, such as formalising verbal contracts.

The first step in the process of the sale is for the parties to negotiate the Heads of Terms, to confirm the main deal terms. Whilst not usually legally binding the Heads of Terms helps to set the stall front for the agreement and can help to prevent substantial renegotiations. During these initial steps, the use of confidentiality agreements can restrict a buyer from sharing information. Further to a confidentiality agreement at this stage, an exclusivity agreement can be introduced to stop the seller from considering other buyers for a determined period.

If the business in question is a limited company, then the style of sale needs to be identified. This can either be a sale of shares or an asset sale. In a share purchase, the buyer usually acquires all the shares in the target company whilst in an asset purchase the buyer selects specific assets and the associated rights that come with them. The buyer and seller would have to consider which method of sale best suits their commercial goals.

A crucial step for both parties is the due diligence stage. The buyer will initiate this process which involves evaluating the target company. This due diligence is usually undertaken through legal and financial advisors to help evaluate the status of the target business. The key focus of this stage is to identify any potential risks, assess those risks, determine third-party consents and guide negotiations over warranties and indemnities. The seller is under no legal obligation to respond to due diligence. However, the findings help the buyer’s solicitors to draft suitable warranties and, if they fail to receive helpful responses, this could become a hindrance to the transaction completing.

Alongside the due diligence, the buyer’s solicitors will typically prepare the share or asset purchase agreement (SPA/APA) and the supplementary documents. The SPA/APA includes the warranties about the business’ condition at the agreement date and further outlines the seller’s liability if these warranties are deemed to be inaccurate further down the line. The seller’s solicitor will usually draft a disclosure letter. This letter outlines the warranties that won’t be given and explains why, including evidence for the decision.

The steps provided above are just the outline of how these complex transactions usually proceed. If you would like more information surrounding the topic you have read or would be interested in pursuing the sale of your company then please contact our offices.

The contents of this post do not constitute legal advice and are provided for general information purposes only.

Associated photo designed by Freepik.

The contents of this post do not constitute legal advice and are provided for general information purposes only ■