Selling your Business – Documentation

Every transaction, whether a share sale, business sale, management buy-out, merger, share scheme (the list goes on!) will be governed by legal documents. These are essential to governing the relationship between the parties and sets out what has been agreed. This is important not only in relation to any ongoing matters between the parties post-deal, but also to any third party onlookers who may need to know about the transaction (in particular, HMRC).

What documents are included?

The actual documents that can be expected will vary between transactions, depending ultimately on the deal structure you are agreeing and what you have to sell. However, typically these may include:

1. Pre-Transaction Heads of Terms and NDA – these are designed to set out the headline terms of the deal and protect your information during the disclosure process.
2. Purchase Agreement – this will govern the operative terms of your transaction including the purchase price, when this is due and the warranties and assurances that you will be required to give the buyer as a part of the transaction. It may also include a tax covenant and a mechanism to adjust the purchase price based on performance.
3. Disclosure Letter – this is a formal letter from a seller to a buyer setting out any facts or circumstances which contradict a contractual warrant being asked of them. Where something is properly set out in the Disclosure Letter, the buyer acquires the business in that knowledge and cannot then claim against the seller in respect of that issue.
4. Service Agreements and Settlement Agreements – if you are also an employee of the business, it may be that your employment needs to be terminated on completion. Similarly, if you are going to continue to provide services post-completion then you may require a service agreement to govern this relationship.
5. Property Transfer Documents – if there is going to be any change to property ownership in the transaction, you will need documentation to deal with this. This may include a TR1 and contract for sale if transferring the freehold or registered lease, or a Deed of Assignment and Lender Consent if transferring a lease. This is particularly key if undertaking a ‘business sale’ or ‘asset transfer’
6. Contract Assignments – you may need to transfer rights or obligations from one party to another as a part of the transaction, particularly if a ‘business sale’ or ‘asset sale’. This can include assigning intellectual property, goodwill or even contracts with customers or suppliers.
7. TUPE Notices – if you are undertaking an ‘asset transfer’ or ‘business sale’ and have employees, you will need to notify them in accordance with their statutory rights and your statutory obligations.
8. Ancillary Documents – in addition to the operative purchase agreement, you may also need various ‘ancillary’ documents to effect the transactions it anticipates. This would include stock transfer forms, board minutes for any companies involved in the transaction, resolutions that are required to be passed, powers of attorney and indemnities for any lost/unissued share certificates, directors consents and resignations and notices for changes of persons of significant control. What you actually need will vary on each transaction.
9. Companies House returns. If you are selling a company, there are certain returns that need to be filed at Companies House within statutory deadlines.

Who is involved in this process?

Your legal team is key to drafting, negotiating and amending these documents. The buyer and seller have adverse interests in a transaction and therefore it is important that you appoint an independent solicitor to advise you in the sale and negotiate the documents on your behalf to ensure that they also include adequate protections for you as a Seller and that you are fully informed of the risks of proceeding. They will also work closely with your accountant and other advisors to ensure that they also account for any tax or accounting elements that need to be accommodated.

If you want to know more about the process of selling a business and how we can support you…please do contact Holly Threlfall or the team on 01604 828282 / 01908 660966 or email info@franklins-sols.co.uk

Now you know what is involved in selling your business, you know how important it is to have the right team around you to guide you with each element of your transaction and ensure the best outcome for you.