Preparing to sell your business

While it is possible to sell a company with little more than a stock transfer form, in practice, the vast majority of company sales and purchases involve extensive preparation and a detailed due diligence exercise.

Check your Commercial contracts

The purchaser will expect copies of the company’s key commercial contracts, including agreements with clients, contractors and suppliers. Each contract should be reviewed carefully during the due diligence process to identify any provisions affected by the sale and to confirm that the contracts will remain in force following completion, where required.

Some contracts may contain change of control provisions allowing them to be terminated or requiring consent when ownership of the company changes. This can have a significant impact on the transaction and potentially the purchase price. Other contracts may only be transferable following notice or with the relevant third party’s consent. There is no ‘one size fits all’ approach, as the requirements will vary between contracts. Identifying these issues early can help avoid delays and renegotiation later in the transaction.

Another concern arises where the business operates from leasehold premises. The lease may need to be assigned to the buyer and the landlord may require references or other information about the buyer before providing consent. It is generally the seller that must obtain the landlord’s consent; however, the process can often be progressed more quickly with the buyer’s cooperation.

Pre-sale check of Intellectual Property

IP exists in intangible assets such as websites, databases, trade marks, copyright and patents created or acquired by the business. It takes time to build a brand that customers identify with and trust and often it is this goodwill and associated IP that contributes significantly to the value of a business.

All intellectual property rights should be identified and disclosed to the buyer. Before doing so, you need to establish who owns the relevant IP. Where IP is unregistered and ownership is unclear, buyers will often require IP assignment agreements, commonly between the founders and the selling company. This provides assurance that the selling company owns the relevant rights and can transfer them to the buyer.

Our team can complete an IP audit and identify potential ownership or documentation issues before the transaction begins, helping to reduce delays and keep negotiations moving.

Employment law checks before business sale

Employees of a company that is being purchased are afforded certain safeguards by statute, which sets out responsibilities and duties owed to them by both the selling and buying businesses under TUPE.

When a business acquires another business, such as through a business sale rather than a share sale, employees assigned to the transferring business will normally transfer automatically to the buyer under TUPE. The purchaser will therefore need details of the relevant employees, including their job titles, salaries and terms and conditions of employment.

A business acquisition can be a worrying time for employees. It is important that the process is handled sensitively, with appropriate communication and transparency. Employment disputes or other employee issues should be identified early and properly disclosed during the transaction.

Finances and corporate filings

You can expect the buyer to take a thorough look at the financial affairs of the target company. Directors should be prepared early on and be mindful that they may have duties to act in the company’s best interests and, depending on the circumstances, to consider the interests of creditors. They should also ensure that the company’s financial affairs are properly recorded and up to date.

Copies of the company’s annual accounts and directors’ reports for previous financial years will generally form part of the due diligence information requested by a buyer, with the period covered depending on the transaction.

Business accounts featuring cash flow, profit and loss, cash reserves and other assets and liabilities should be readily available and kept up to date so that they accurately reflect the company’s position at the time of the sale. Any materially adverse change in the company’s financial position before completion will need to be considered and, where appropriate, disclosed, as this may affect the value of the company. If in doubt, buyers are likely to negotiate the price downwards.

Warranties and indemnities in any sale or purchase can be difficult negotiating points. Sellers might be expected to give warranties on financial matters such as actual or potential claims against the company, or confirmation that outstanding liabilities to HMRC have been dealt with.

Also check :-

• your corporate filings are up-to-date - t is a legal requirement for companies to keep certain statutory registers and records, although these are often overlooked. A buyer will usually expect the company’s statutory records to be in order and available as part of the completion process, so it is worth addressing any gaps at an early stage. Depending on the company’s history, updating these records can take some time.
• whether you need to get change of control consent? - The company being acquired will invariably be a party to various contracts with third parties, including landlords, local authorities, insurers and suppliers. Some of these contracts may require third-party consent before a change of control takes place.
• the position with any loan and security over the company's assets -  anks may be required to release security held over the company or consent to the transaction. Consider whether any loans or other financing arrangements will need to be redeemed or refinanced as part of the transaction.

How we can help

Our team understands the importance of the due diligence process and the impact it can have on the successful completion of a sale. We also understand the pressure involved in organising and reviewing the information required, particularly where transactions are progressing to tight timescales.

Gannons can assist with reviewing contracts, updating corporate records and filings, identifying and documenting IP ownership, and dealing with other pre-sale checks, helping to reduce the pressure on you.

If you are preparing to sell your company and are unsure how to organise or review your position before entering the due diligence process, please contact us on 020 7438 1060 or email us to discuss how we can assist.