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If you are thinking of buying or selling a limited company, one of the first decision you have to make is to decide whether you want to sell or purchase the assets or the shares.
During the share sale of a company the new buyer takes ownership of the existing business and continues to run it with its contracts, employees and premises intact.
The buyer replaces the owners of the company as a shareholder and a director. As a result, there is no transfer of company assets and no third party involvement is necessary.
This also means that the buyer will take on the liabilities of the business, including company debt. As the level of risk for the buyer is greater in a share sale, when compared to an asset sale, the process and the documentation will be more in-depth. The contract will require more guarantees and tax covenants to cover the buyer against any liabilities the company might have.
Existing shareholders can transfer their shares with a stock transfer form. However, we advise our clients to consider a share transfer agreement which gives better protection to both the buyer and seller.
The comprehensive share transfer agreement can be prepared whilst due diligence is taking place and will cover the following areas:
Once the transaction is complete it will be registered at Companies House to recognise the new ownership.
If you're planning to sell shares in your company, here are some general steps you can follow:
Prepare the company for sale: This involves updating legal documentation, ensuring that financial records are up-to-date and accurate, and improving the overall financial performance of the company to make it more attractive to potential buyers.
Determine the value of the shares: This can involve getting a professional valuation or using industry benchmarks to estimate the value of the shares, taking into account factors such as the company's financial health, growth potential, and market trends.
Find potential buyers: You can use a broker or personal connections to find potential buyers who may be interested in purchasing shares in your company.
Negotiate the sale: Once you have identified potential buyers, you'll need to negotiate the sale price and terms of the sale, taking into account factors such as the current market value of the shares and any potential future earnings.
Complete due diligence: Before the sale can be finalised, the buyer will conduct due diligence to ensure that the company is in good financial and legal standing, and that there are no hidden liabilities or other issues that could impact the value of the shares.
Preparation of the legal paperwork: it is usual for there to be a share or business purchase agreement drafted. This is commonly negotiated between the parties and records the terms of the sale as well as the seller’s warranties and other key terms. There is often a number of other documents alongside the sale or business purchase agreement, such as a disclosure letter, as well as documents required to transfer the legal ownership of the business or shares.
Complete the sale: Once the buyer is satisfied with the due diligence, and the various sale documentation has been agreed you can transfer ownership of the shares and complete the sale.
It's important to seek legal and financial advice from our solicitors throughout the process to ensure that your legal rights and interests are protected.
Our experienced corporate lawyers have a strong track record of successfully assisting both buyers and sellers with all aspects of share transactions. We will identify any areas of concern and advise on all aspects of the transaction. Stephensons will assist you in securing the outcome you desire. If you would like to speak with one of our experienced corporate lawyers please call us on 01616 966 229.
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