By Hiren Gandhi, is partner at Blaser Mills Law
There are many things to think about when getting ready to sell your business, but at the top of the list should be ensuring you understand the legal process. Getting the deal done right takes time, but fail to do so and you could be at risk of facing legal ramifications.
Here are some of the key steps you need to follow to successfully complete the sale of your business, and to ensure a smooth transaction for both you and the buyer.
Find the right buyer
Finding the right person to acquire your business is crucial if you want to get the most money for your company but identifying them at an early stage can also speed up the sale process and ensure it’s as straight forward as possible.
Start by deciding whether you’re looking for a strategic buyer (someone in the same industry who wants to integrate your firm into their existing business) or a financial buyer (usually an investor mainly interested in the return they can achieve through the acquisition). You should pay attention to all aspects of the buyer, for example whether they are financially qualified, if they understand your business and if they will be able to move forward in a timely fashion. If you find this overwhelming, consider working with an external advisor who can help determine if a buyer is right for acquiring your company.
You must allow your buyer to undergo their own due diligence and look into aspects of your business, including financials, contracts, assets, workforce and any other important information. Not only will this help them decide whether they want to go ahead with the purchase, it will also protect you if a sale is made, and transactions that undergo a due diligence process have been proven to offer higher chances of success.
Declare your intentions
Once you’ve found your buyer, you should form a Letter of Intent (LOI), summarising all the terms and conditions of the transaction, including the agreed buying price, a target completion date and parties’ key obligations. Whilst it’s not a legally binding document, a LOI does promise you won’t advertise your business for sale whilst undergoing active negotiations with the buyer. Upon completion of the LOI, the buyer should pay a deposit, further confirming they are serious about the transaction, and also sign a confidentiality agreement to prevent them using your company information, such as financial or customer details, or revealing it to another source.
Create a purchase agreement
A Business Purchase Agreement is a legal document which outlines the purchase of a business, including (but not limited to) detail of the company and/or assets being transferred, the date when the buyer will pay and non-competition agreements to ensure the seller won’t compete with the business they are handing over. Producing this document is vital in preventing a number of potential legal issues, from problems collecting money to discrepancies around indemnity provisions.
If you are selling your business, any employees will transfer to the new employer, and you are therefore legally required to inform and consult your employees under the business transfer legislation. This not only includes employees who are transferring, but also other employees in the business who may be affected by the transfer and have a right to be informed. If an employee refuses to transfer with a business, they have not been dismissed but have effectively resigned, meaning they lose the right to claim certain employment rights.
Additionally, you must provide the buyer/new employer with certain information about the employees who are transferring to them. This is known as employee liability information and aims to give the new employer time to understand their obligations towards the transferred employees.
In most cases, a change of business ownership involves the end of one business and the beginning of another, and several key documents will need to be created for the new business, including a paper trail showing the transfer of any assets, liabilities and Intellectual Property. You will also need to inform all the stakeholders in your business of the change in ownership, as well as other relevant organisations.
Talk to a professional
Selling your business is one of the most important things you’ll do as an entrepreneur, and it’s likely you’ll only do it once. Involving a legal advisor at an early stage in the selling process can not only minimise liability issues, it can help save time and money in the long run and ensure you get the deal you’re after. Make sure you choose a respected lawyer who understands your industry and has experience in transactions of similar size. The correct legal counsel can go a long way in ensuring the selling process is as seamless as possible.