People who are looking to exit their business are often ‘first-time sellers’ and therefore it is helpful to know in advance what the legal process actually involves. We have put together a brief summary of this below.
Negotiating a sale and the heads of terms
Once you have identified a buyer, the legal work usually commences when you negotiate the key terms of the transaction with the buyer. Once you reach an agreement on these terms, they would normally be recorded in a document known as the ‘heads of terms’. The document would typically include the sale price, an agreed date for the sale, how the purchaser plans on paying for the business, and the timetable schedule for the transaction including due diligence, sale contract and disclosure, and obtaining the necessary approvals from third parties if necessary. A confidentiality agreement is also a good idea, since the buyer will have access to various information that the vendor may wish to protect in case the transaction falls through.
The legal aspects of the sale process
Due Diligence
This is where the buyer, with the help of advisers, conduct thorough investigations into the business. The investigations are likely to include questionnaires and requests for various documents. The areas that would be looked at would include the assets of the business, the accounts and financial records, the key legal contacts and the employees. If any issues relating to the business are identified, this can hinder the process of the sale, or even prevent it from going ahead completely.
Sale contract and disclosure
Whilst the investigations are being carried out, the sale of contract is to be established, which is the main contractual document that records all the terms of the sale, and more importantly the transfer of ownership of the business. The sale contract is often heavily negotiated between seller, buyer and the solicitors. Sale contracts always contain a number of warranties. These are promises that the seller is asked to make in respect of the business being sold.
Completion
Once the buyer has carried out the due diligence investigation, the key documents (sale of contract) are created and agreed on, the necessary disclosures have been made, and any third party consents obtained, the process of the sale can be exchanged and it can reach the completion stage. All legal documentation would be signed so that the contract can be officially entered into, and the seller receives the sale proceeds from the buyer.
If you are considering or have thought about the possibility of selling your business, HA Law are happy to advise you on the matter so get in touch by emailing a HA Law Partner at info@ha-law.co.uk or calling 020 7788 7465.
