Having spent a number of years building your business from the ground up, when it comes time to sell it, you naturally want to make sure that you get things right.
Your business will likely represent the culmination of a significant proportion of your life’s work – most importantly, a financial investment that, when sold, could set you up for years to come.
Selling a business can be a complex process, and you’ll need to ensure that all legal requirements are met to protect both the buyer and the seller.
While you’ll still likely need the assistance of a business broker such as Dexterity Partners, let’s go through the basics of some of the common legal steps that must be taken care of when selling a business.
1.) Business Valuation
The first step in selling a business – as with selling anything – is determining its value.
A professional valuation will give both the seller and the buyer an understanding of the fair market value of the business, which is essential for negotiating a fair price.
It’s vital to ensure that you’re as honest as possible during the valuation process; if you aren’t, there can be serious legal ramifications further down the line.
There are multiple things that you can measure to come up with a relatively accurate valuation – different businesses will suit different valuation methodologies, and it’s important that you choose the right one.
This process can include adding up all of the assets owned by the business, calculating annual revenue, and analysing net annual profit, along with a whole range of other metrics.
2.) Heads Of Terms
Before drafting a formal, legally binding sale agreement, both parties of the sale will typically enter into heads of terms.
These are non-binding agreements that aim to set out the basic terms of the sale, including the purchase price, payment terms, and any further conditions that the sale might depend on.
3.) Legal Agreements
Once the heads of terms have been agreed upon, the next step is to draft a comprehensive legal agreement.
These typically include a sale and purchase agreement, a disclosure letter, and a range of other documents depending on the nature of the business, such as employment agreements and lease documents.
4.) Transfer Of Assets
In many cases, the sale of a business involves the transfer of assets. This might include property, inventory, and intellectual property.
Each of these assets may need dealing with using a different legal structure – for example, the transferal of intellectual property by assignment will look quite different to the process of the transferal of physical property rights.
It’s important to ensure that all the necessary legal steps are taken to transfer ownership of these assets to the buyer in a responsible, legally binding manner.
This will likely require close cooperation with a team of solicitors with appropriate industry expertise.
5.) Tax Implications
Selling a business can have significant tax implications on both the buyer and the seller, and it’s crucial that you consult a tax professional to fully understand the tax implications of the sale.
This includes understanding any capital gains taxes that may be due, and ensuring that if there are any outstanding tax-related debts that the buyer may be taking on, the buyer is made fully aware of those debts.
There may also be ways of minimizing the taxes associated with the sale – again, this will necessitate speaking with an accountant or solicitor to work out which options are best for you.
6.) Regulatory Compliance
While this will depend to a certain degree on the nature of the business being sold, there will likely be regulatory requirements that need to be met as part of the sale.
This may include getting certain licenses or permits, complying with specific environmental regulations, or ensuring ongoing compliance with employment laws.
While these obligations largely transfer to the new owner once the sale has been finalised, it may be the seller’s duty to take reasonable measures to inform the new business owner of any unexpected legal obligations they will face as a result of taking on the business.
When you break down the process of selling a business into the constituent steps, the procedure hopefully becomes a lot more manageable – it clearly involves a number of legal considerations, and it’s important that you work with experienced legal professionals throughout the process.
The process will differ from case to case, but typically includes getting a professional valuation, drafting legal agreements, transferring assets, and complying with regulatory requirements.
By taking these steps (and in many circumstances, a fair few more) sellers can ensure the smooth sale of their business.