You need to get “Heads of Agreement” together. This is a one-page summary of the deal with the essential items such as what is being sold, the price, when you get paid and any special terms. If you are selling through an agent, this should be done by them. It is not a binding legal document, but is the basis of the deal.
This will depend on what has been negotiated with your buyer and the tax implications for you and the buyer. Sellers usually want to sell the shares and buyers want to buy the assets and not the shares. You need to get tax advice on this early on.
Probably not, share sale agreements are usually for the protection of the buyer. The buyer wants the seller to guarantee matters such as ownership of business assets, past turnover figures, details of staff, agreement not to compete with the buyer and so on. Generally, if you are a seller and the buyer will pay you in full when you hand over the business, you are best off without any written agreement.
Get them to sign a confidentiality agreement at the outset. Do not give out any information or let the buyer talk to your staff without this. Make sure there is wording in the agreement covering the buyer not recruiting key staff if the deal does not proceed.
Usually, they will want to. It is best to have an agenda in advance so you and your accountant know what questions the prospective buyer has. You should be at this meeting. Be careful about high fees being generated and the buyer then pulling out of the deal, leaving you to pay the accountant’s bill. Also remember that the buyer may talk to your accountant about retaining him/her after the sale. This is obviously a good move for a buyer who wants information.
They want to ask a lot of questions about your business, find out about suppliers, customers, key staff and contacts. The best approach is to make sure your business and its administration are in good shape before you sell. This way you can be well organised and give your buyer key information quickly and in an orderly way, which will maintain their confidence. You should also be doing some due diligence on the buyer. Is he/she reputable, has he/she got the money to do the deal and what has been his/her track record in any other acquisitions? This aspect is often overlooked by sellers, but it is crucial.
It is best to be over prepared. Make sure your accounts are up to date and anything you need to file at Companies House, HMRC or elsewhere has been done. On the accounts, it is best to talk to your accountant at least a year in advance to see how best to present the accounts from a buyer’s perspective. Loose ends on the accounts should be tied up and anything “opaque” in the accounts dealt with so it does not give rise to questions.
Also make sure all formalities on any lease have been completed. Staff contracts and their reviews should all be on file. The more compliant you are and the more you can show you are following “best practice”, the better. This usually involves more documentation, but this is what most quality buyers want to see when going down their checklists. If you have any on-going disputes with staff or others, try to settle the cases – buyers don’t like litigation. Contracts with customers and their details should be immediately available, as well as contracts with your suppliers. It looks best if suppliers have been paid on time. Try to get all customers billed and money in, so you will not have to deal with collection of large amounts of debts after a sale.
If you have a lease and you sell the shares in your company, the lease will be transferred with the shares. The buyer will probably contact the landlord in any event. If you sell the assets, you will need to transfer the lease and this will involve your landlord. If you own your premises, you can include them in the deal or sign a new lease with your buyer on completion.
No, tell them as little as possible, as late as possible.
Work on a need-to-know basis. Only tell people you have to tell to get the deal through and tell them as little as possible. Always avoid giving the name of the buyer.
This is a usual request. You should have as little money held back for as short a period as possible. It is best a solicitor holds the money in escrow and the terms are very clear as to when the buyer can keep all or part of the money.
This is a usually a form of “earn-out” that requires specialist advice. These arrangements can easily lead to litigation. Also be very careful with the tax position. It is usually possible to get the whole amount paid treated as capital and so eligible for entrepreneurs’ relief and taxation will probably be at 10%. If, however, the money paid over the two-year period is treated as income, it will be taxed at much higher marginal rate. The problem is buyers usually want it treated as income, because they can then deduct it against their profits and get immediate tax relief on the expenditure.
This is typical of earn-out type deals. Avoid it if possible – remember good employees sometimes evolve into successful entrepreneurs, but successful entrepreneurs never evolve into good employees. You are likely to quickly become disillusioned and frustrated as an employee.
Fair enough, but make sure it is for a set period of time and is subject to reasonable geographical and trade terms.
Do not waste money by instructing them too early. Line a lawyer up, but do not formally instruct him/her until you know the deal is definitely on. Make sure you know who will have day-to-day conduct of your file and meet the person. Smaller law firms will usually be better for smaller deals. Get an estimate of fees at the outset and factor in that the final cost will be higher. If you have any doubts – find someone else.
Blog provided by David Anderson (solicitor advocate and chartered tax adviser) and Alan Massenhove (commercial solicitor) at Sykes Anderson LLP. Please note that commercial and tax law are complex subjects and you should not rely on this article without professional advice on the facts of your case.