Sell Your Business: Exploring Your Options

‍

Selling your business is a significant decision that requires careful consideration and planning. Whether you are looking to retire or pursue new ventures, it is crucial to understand the various options available to you in order to maximize your profits and minimize tax liabilities. In this comprehensive guide, we will explore the different ways to sell your business, including share sales, asset sales, and selling to a single buyer or through an auction. We will also delve into specific considerations for selling different types of companies, such as partnerships and limited liability partnerships (LLPs) and public limited companies (PLCs). Additionally, we will discuss the process of selling a company in financial difficulty, including companies in administration and insolvent companies. By the end of this guide, you will have a clear understanding of the options and considerations involved in selling your business, allowing you to make informed decisions and navigate the sale process effectively.

Table of Contents

1. Introduction
2. Share Sale
3. • Advantages of a Share Sale
   • Disadvantages of a Share Sale
3. Asset Sale
4. • Advantages of an Asset Sale
   • Disadvantages of an Asset Sale
4. Selling Different Types of Companies
5. • Partnerships and Limited Liability Partnerships (LLPs)
   • Public Limited Companies (PLCs)
5. Selling a Company in Financial Difficulty
6. • Companies in Administration
   • Insolvent Companies
6. Selling a Company to a Single Buyer (Bilateral Transactions)
7. Selling a Business at Auction
8. Capital Gains Tax and Tax-efficient Selling
9. • Entrepreneur Relief
   • Retirement Relief
9. Which Option Should You Choose?
10. How to Claim Tax Relief
11. Conclusion
12. About Us

1. Introduction

Selling your business can be a complex and time-consuming process. It is crucial to plan ahead and consider various factors that may impact the sale, such as the type of sale, the nature of your business, and the tax implications. By understanding the different ways to sell your business, you can make informed decisions and maximize your chances of a successful sale. In the following sections, we will explore the two primary methods of selling a business: share sales and asset sales.

2. Share Sale

A share sale involves the buyer acquiring all of the shares of your company, making them the new owner while the company continues to operate as usual. This type of sale offers a clean break for you as the business owner, minimizing the hassle of dealing with individual assets. However, a share sale typically requires extensive warranties and indemnities from the seller to protect the buyer against any risks associated with the company’s assets and liabilities.

Advantages of a Share Sale

• Simplified Transfer of Ownership: In a share sale, the buyer acquires the entire company, including its assets and liabilities, making the transfer of ownership straightforward.
• Maintained Contracts: Existing contracts with suppliers and clients often continue after a share sale, minimizing disruption to business operations.
• Preserved Employee Rights: Employees transfer automatically, and the Transfer of Undertakings Regulations (TUPE) does not complicate the process, eliminating the need for consultation and potential legal challenges.
• Potential Tax Benefits: Share sales may result in lower tax liabilities, as there are no property taxes like stamp duty, and corporation tax can be minimized.
• Clean Break for the Seller: A share sale allows the seller to achieve a clean break from the company and its liabilities.

Disadvantages of a Share Sale

• Complex Negotiations: The sale and purchase agreement for a share sale often includes extensive warranties and indemnities in favor of the buyer, making negotiations time-consuming and complex.
• Due Diligence Process: The buyer conducts a thorough due diligence process to assess the company’s assets and liabilities, potentially extending the timeline and requiring the establishment of a data room for document sharing.
• Change of Control Provisions: All contracts must be audited to determine if they contain change of control provisions that necessitate obtaining consent from the other party to the share sale.
• Capital Gains Taxes: Shareholders may be subject to capital gains taxes on the profits made during their ownership of the shares.

3. Asset Sale

An asset sale involves the buyer acquiring specific assets of the company, potentially assuming associated liabilities. The company itself is usually dissolved after the sale, with the buyer taking ownership of the individual assets. This type of sale reduces risks for the buyer and allows them to choose which assets to include in the transaction.

Advantages of an Asset Sale

• Reduced Risk for the Buyer: In an asset sale, the buyer can select which assets to acquire, minimizing their exposure to potential liabilities.
• Simplified Warranties and Indemnities: With fewer assets involved, negotiations over warranties and indemnities are typically less complex and time-consuming.
• Minimal Involvement from Shareholders: The directors of the selling company can proceed with the sale with limited involvement from the shareholders.
• Streamlined Due Diligence: The due diligence process for an asset sale is often shorter and less involved compared to a share sale.

Disadvantages of an Asset Sale

• Transition and Communication Challenges: As the company will be dissolved after the sale, transferring properties and assets may require contacting third parties, potentially impacting publicity and information control.
• Employee Rights and Contracts: If the business continues to operate after the sale, employees’ rights must be protected through consultation and the negotiation of warranties and indemnities with the buyer.
• Individual Negotiations: Contracts with suppliers and clients do not automatically transfer and must be individually negotiated with relevant third parties.
• Separate Property Transfers: Each property comprising the business premises requires separate negotiations and sales documents.
• Tax Implications: The tax situation for the seller, including corporation and capital gains taxes, may be less favorable compared to a share sale. The buyer may also need to pay stamp duty tax on property transfers.

4. Selling Different Types of Companies

While the sale of private limited companies is the most common form of business sale, other types of organizations have specific considerations. Let’s explore selling partnerships and limited liability partnerships (LLPs) as well as public limited companies (PLCs).

Partnerships and Limited Liability Partnerships (LLPs)

If you operate your business as a partnership or LLP, the sale process differs from that of a private limited company. Selling a partnership can be more complicated due to the ownership structure and the distribution of assets among partners. In some cases, business owners choose to incorporate their partnership before the sale to facilitate a sale of shares. When selling a partnership, it is essential to consider asset ownership, equity division, and tax consequences.

Public Limited Companies (PLCs)

PLCs are subject to regulatory frameworks governing the trading of their shares. The City Code on Takeovers and Mergers sets principles for business sales involving PLCs, ensuring fair treatment of shareholders and transparency in the market. Selling shares of a PLC involves certain differences compared to private limited companies, such as reduced warranties and indemnities, less detailed due diligence, and limitations on imposing conditions on purchase offers.

5. Selling a Company in Financial Difficulty

If your company is in financial difficulty, selling the business may be a viable option to recover its value. Companies in administration and insolvent companies have distinct considerations when it comes to the sale process.

Companies in Administration

When an insolvent company enters administration, the aim is often to rescue and sell the business as a going concern. This involves appointing an administrator who secures and insures the company’s assets, notifies staff and creditors, and manages the administration process. Selling a company in administration requires accelerated timelines and may involve reduced knowledge of the company’s assets and liabilities, leading to a “sold as is” approach in the sale documents.

Insolvent Companies

If your company is technically insolvent and a buyer cannot be found, you may consider a business sale just before or after the company goes into administration. This procedure, known as “pre-pack” administration, aims to preserve the value of assets and obtain better prices. If a buyer cannot be found, the company will be liquidated, and its assets will be sold to pay creditors. Liquidation involves closing down the business, terminating contracts, and distributing remaining capital to shareholders.

6. Selling a Company to a Single Buyer (Bilateral Transactions)

When selling your business, you may choose to negotiate a sale directly with a single buyer. This type of transaction is known as a bilateral transaction and involves negotiating the sale with one party, rather than putting the business up for auction. The decision to sell to a single buyer or through an auction depends on various factors, such as the type of business, privacy concerns, timelines, market conditions, and potential buyers. Selling to a single buyer offers more control over the transaction process but may limit the pool of potential buyers.

7. Selling a Business at Auction

Alternatively, you can choose to sell your business through an auction. Auction sales can attract multiple interested parties, potentially resulting in a higher price for your business. Additionally, selling through an auction provides more control over the sale process, including due diligence, document drafting, and timelines. However, auction sales may not be suitable for businesses in niche markets or regulated industries, and the costs and disruption to normal business operations should be considered. It is important to note that unsuccessful auction sales may impact future selling opportunities.

8. Capital Gains Tax and Tax-efficient Selling

When selling your business, it’s important to understand the tax implications and investigate strategies for tax efficiency. A key tax to consider is Capital Gains Tax (CGT), which is typically levied on the profit (capital gain) obtained from selling an asset, such as business assets. The specific CGT rate can vary depending on your jurisdiction. Additionally, there may be available reliefs and exemptions in your region that could potentially lower the CGT liability.

9. Which Option Should You Choose?

Choosing the right option for selling your business depends on various factors, including your personal circumstances, the value of your business asset, and your long-term goals. Share sales offer a clean break and potential tax benefits, but they involve complex negotiations and due diligence. Asset sales provide reduced risk for buyers and simplified warranties and indemnities, but they require separate negotiations for each asset and may have tax implications for the seller. Consider consulting a small company accountant or financial advisor with experience in business sales to help you evaluate your options and make the most informed decision.

10. Conclusion

Selling your business is a significant endeavor that requires careful consideration and planning. By understanding the different ways to sell your business and the tax implications involved, you can make informed decisions and maximize your chances of a successful sale. Whether you opt for a share sale, asset sale, or choose to sell to a single buyer or through an auction, it is crucial to evaluate your options based on your specific circumstances and goals. Seeking advice from professionals experienced in business sales, such as our network of financial advisors, can provide valuable insights and help you navigate the complexities of the sale process. With proper planning and guidance, you can confidently sell your business and embark on the next chapter of your professional journey.