1. Overview

It is important to make sure that every phase of the company sale negotiations is recorded so that all terms and agreements are included in the final contract. Even if the company is tiny and the transaction is simple, nonetheless carry out this action.

Throughout the procedure, get professional guidance from an accountant and a solicitor to prevent expensive errors and unforeseen responsibilities. To make sure the agreement you agree to is tax-efficient for you, you may also consult a tax expert. The first step of the transaction should be handled by the sellers by either a corporate financier or a business broker.

2. Getting ready to negotiate a business sale

Your first agreements will be with a financial advisor for guidance on finances and taxes, and a lawyer for legal matters. In order to contact potential purchasers, sellers are also likely to choose a business transfer agent or business broker. You must specify duties and payment schedules precisely.

Before a potential buyer receives the sales memorandum, the seller's attorney will draft a legally-binding secrecy or non-disclosure agreement for them to sign. This is often also done by a corporate finance advisor or company broker.

The seller provides information on the following in the non-binding sales memorandum: 

• the industry in which the firm operates; 

• the length of time the company has been in operation; and 

• key financial data, such as earnings, cash flow, asset value, and total debt.

• The specifics of each employee's job description, age, length of service, or pay, and perks;

• the location of the business; its size; the rent and rates; 

and whether it is freehold or leasehold (with conditions) specific factors (such as special licenses) 

• the sale's structure, such as whether the firm is being sold in whole or in part

All bids to buy should ideally be submitted in writing. Following up on an initial verbal purchase offer, a letter outlining the essential information and clearly emphasizing that the offer is ‘subject to contract'—that is, not legally binding—should be sent.

The offer should contain information about the following: 

• what the buyer is offering to buy, such as the business or its assets; 

• the offer price and terms of payment; and 

• the key details that the buyer needs to know before making a firm offer, such as the transferability of leases, licenses, client contracts; liabilities for employees, etc.

At this point, the seller chooses a buyer by weighing bids. It is the seller's duty to verify that potential purchasers have good credit and are able to generate the necessary capital to purchase the company. Following that, the buyer must begin investigating the company; this is known as preliminary due diligence. Lawyers should be consulted before beginning due diligence and until a formal acquisition offer has been agreed upon and signed.

3. Preparing for the final contract

The following stage is to negotiate the firm purchase offer, also known as a Heads of Terms agreement or Heads of Agreement, after the buyer and seller are pleased with their first checks and an initial offer has been made and accepted. The essential terms of the sale are outlined in this agreement, which is often not legally enforceable unless confidentiality and exclusivity concerns arise. The following topics should be covered in the heads of agreement: 

• what is sold; 

• price and terms of payment;

• preconditions for the sale (e.g. minimum level of earnings or orders within a given time) 

• the terms of the period of exclusivity to complete the sale, including that period's termination (typically the buyer makes a modest deposit in exchange for the seller withdrawing the firm off the market)

A portion of the agreement is spelt out in other agreements and is enforceable legally:

• Uniqueness

• Propriety

• Guarantees

• Liabilities

Additional legally-binding contracts include any agreements between the seller and buyer to reimburse one another's expenses in the event that the transaction falls through, as well as the seller's disclosure letter restricting his obligations under the warranties.

Each of these papers must be meticulously created and verified. The transaction will most likely not proceed if the seller does not fulfil the prerequisites. The buyer may file a lawsuit for damages if the warranties are broken. Giving misleading or incorrect information regarding shares is a crime committed by the seller.

Detailed due diligence is the process by which the buyer's advisors thoroughly review the company records after the signing of the Heads of Agreement. Three categories of due diligence exist:

• Legal considerations include, for instance, confirming that the company is legally entitled to the assets it is selling or transferring; 

• financial considerations include making sure all financial affairs are in order; 

• and commercial considerations include determining the company's status in the market.

The seller and you continue to negotiate over the final sale agreement, also known as the sale purchase contract, throughout this time.

4. Signing and completing the sale

Make sure the sale purchase agreement has all the agreements reached throughout the talks and that the supporting paperwork contains all the information that is required. The buyer's attorney drafts the majority of these paperwork, which are then remotely negotiated, completed, and signed.

Usually, the completed paperwork consists of:

• any additional indemnification agreements, whereby the seller undertakes to compensate the buyer in full for any concealed obligations incurred by the firm prior to the sale; 

• the sale agreement; 

• the tax deed (in share sales, this is the seller's indemnity against unanticipated tax liability);

• documents pertaining to licenses, leases, client contracts, shares, etc.; 

• minutes of the board meeting authorizing the transfer of ownership and the resignation of directors; 

• service agreements (for the seller and other directors continuing in an advisory capacity and for employees staying with the business)

• the seller protection schedule for the buyer's claims against warranties; 

• agreements for any deferred payments by the buyer; 

• warranties, such as those ensuring the accuracy of the seller's statements on all material information; and 

• finance details for the sale (including guarantees, loan or share agreements).

• The seller's warranty disclosure letter and supporting documentation

• covenants or non-compete agreements, which forbid the seller from establishing a rival company in the same location for a certain amount of time.

Following the signature, the lawyers for the buyer and seller make sure that each party has the original papers that are required. A file or CD including all the paperwork for the seller and the buyer is prepared by the buyer's solicitors.

In order to complete the transaction, the buyer's lawyers must: 

• File the transfer of ownership and directors with Companies House.

• In asset and goodwill transactions, the buyer registers for GST and the seller deregisters.

• The buyer and seller go over the task list for the handover.

• The financial agreements are implemented. 

• The seller, and the buyer if required, must have notified and consulted the affected employees and be in compliance.

5. The seller's viewpoint throughout the negotiation of the contract

Remember your goals for the sale of your company throughout the negotiating process. If need, reevaluate the items you are willing to sell, the kind of customer, and the funding. An employee buyout, for instance, can be a better option than a trade sale. It could be preferable to selling and failing to meet your goals, even if you lose money on the fees of your advisors.

Use a business transfer agency, business broker, or corporate financier to issue your sales memorandum if you're selling to another company. In this manner, you keep the identity of your company a secret until you have selected your possible customers.

Get your purchasers to sign non-disclosure or confidentiality agreements before you begin negotiations. In order to weed out potential purchasers who are unable to pay, you must investigate their creditworthiness as soon as possible. Examine the original proposals' costs and conditions of payment. A lot of future payments that are dependent on earnings or other goals can be among them. Make your initial pick, but in case this transaction doesn't work out, have additional purchasers lined up.

It's possible that you've chosen to sell to the highest bidder or the person who can best ensure the success of the company. In any case, if your connections and experience are essential to the company, you should be ready to stay on staff for a certain amount of time.

Pay close attention to the language and the scope of the indemnities and warranties. Have your attorney prepare a vendor protection schedule to restrict the time period they apply, as well as a disclosure letter to minimize your responsibilities.

Equal attention must be paid to the financial information, and you should investigate your buyer's credit history and the terms of the payment plan they are proposing in further depth.

Verify in writing that all issues have been settled and agreed upon with the buyer before agreeing to sell.

6. Checklist before you sign a contract

You must carefully review the information included in the final contract and any supporting documentation before signing. There is a list of additional things you must do after signing in order to finalize the deal.

Before you sign, you should:

 • review your aims and how well this contract meets them 

• make sure all the agreements made during the negotiation are included in the contract 

• make sure there are no vaguely worded provisions, exclusions or limitations in the contract which could give rise to problems later 

• if you are buying, ensure you have non-compete agreements in place 

• check the financial and tax details again with your financial adviser 

• check your obligations and the wording of the contract and other agreements again with your solicitor 

• ensure all the necessary documentation and signatories are present at the signing session 

• establish a schedule of tasks for completing the sale, making the handover, continuing the business and meeting future obligations 

• make sure you have copies of all negotiated agreements kept in a safe place 

• have informed and consulted affected employees in compliance 

Once you have signed, confirm that: 

• All parties who need to sign have signed the relevant documents; 

• Your solicitor has all the original documents you need to keep; 

• The buyer's solicitor has copies of all the documents and will provide a CD-ROM version to both the buyer and seller; 

• The financial agreements are put into effect; 

• The buyer's solicitor makes the change of ownership return to Companies House; • In asset and goodwill deals, the seller deregisters and the buyer registers for GST; 

• The seller, and the buyer, if applicable, continue to inform and consult affected employees in compliance with TUPE when necessary; 

• Both parties are prepared for the handover and for informing clients, suppliers, etc.; 

• The business runs smoothly both before and after the sale is completed

7. Resources for further guidance

Significant changes in your life and career occur when you buy or sell a company. It might be intimidating to deal with the contracts and details. To make the most of this chance and steer clear of potentially devastating blunders, plan and seek professional assistance early on.

You should speak with a professional for guidance on contracts and any other legal matters related to purchasing and selling a business.

See a chartered accountant for guidance on tax, finance, and company value.

On websites run by business transfer agencies, such as Businesses for Sale, you may compare the current market values of various company types.

Go through our guide. Finalize the sale of your company.