Key questions when selling a business

Whether you’re looking to retire or merely move onto a new venture, it’s important to achieve a clean break. Here are some of the basics you need to consider when selling a business.

By Jack Stephenson, solicitor, Harrison Drury

Asset sale or a share sale?

If your business is owned by a limited company, you can either sell the company’s assets or the shares in the company. By selling the shares the buyer would effectively acquire all the assets and liabilities of the company.

If your business is not run as a limited company, there would of course be no shares to sell. You may therefore sell the assets of the business, including the goodwill, fixtures and fittings, contracts and (if applicable) any intellectual property.

What provisions go in the sale documentation?

It’s important that the sale agreement limits the possibility of the buyer pursuing you in the event the purchase does not work out as planned. Important clauses might include: Warranties:  A warranty is a statement of fact by you as to the state of the business. It is important that the warranties are limited as much as possible and that they are relevant to the business.

Limitation of Liability Clauses:  These ensure your potential liability is limited in the event there’s a breach of the agreement.

For example, common clauses would ensure your overall liability is not more than the purchase price and that limits are imposed on the time period the buyer has to bring a claim.

What happens to the employees?

When selling the assets of a business, it may be the case that employees are afforded protection under the TUPE Regulations 2006. Under those regulations, the buyer will effectively take your place as employer of the employees.

Where the TUPE Regulations apply, there may be an obligation on you to inform and consult with the employees regarding the transfer.

What happens to the property?

You will need to determine what happens to any arrangements you have in place for the business’ premises. This may involve a sale of the property (provided you own it of course), or an assignment or a surrender of the existing lease.

If you are selling the shares of a company, any arrangements already in place with the property may well continue as the company itself (as owner of the property or tenant under the lease) stays the same. It is merely the shareholders that change. Whatever the position, it’s important that protections are included within the transfer documents ensuring that you are not liable for any breaches that might occur after you have sold the business.