How to Sell a Limited Company

  • Written By : Kasra Dash
  • Time : 6 minutes

There are several reasons why you might want to sell your limited company. Maybe you cannot run the business and need cash to pay bills or make an investment elsewhere. You might want to realise whatever earnings you have made. Perhaps you think it is time for you to retire.

Whatever the reason, there are legal requirements and procedures to consider before selling your business.

We’ll outline some available options for you and explain what to consider when choosing which route to take.

Steps on How to Sell a Limited Company

Here are some steps on how you could sell your limited company:

Get a Business Valuation

The shareholding must be valued before being sold. There is typically an agreed-upon method for determining the shareholding value in your company’s shareholders agreement.

In the absence of such an agreement, seek the service of an accountant who has experience valuing private limited companies and can help reduce the likelihood of conflict and disagreement between you and the buyer.

Prepare for Due Diligence

Prospective buyers usually hire accountants and solicitors to conduct rigorous due diligence investigations to ensure they get a good deal. Be ready for this because any gaps or errors can be a deal-breaker.

Having a lawyer or accountant handle this stage on your behalf would be wise.

Credit Check Your Buyers

Check the buyer’s funding source and the funds transfer process. You must also consider the buyer’s reputation and the legal documentation that must be prepared before proceeding with the sale.

Carry out the Sale

Review all documents, then work toward a mutually convenient sale date. The essential documents that you should check are as follows:

  • Share purchase agreement – specifies the terms of the sale of shares; contents and complexity may vary depending on the transaction’s specifics.
  • Lender documents – needed if the buyer is borrowing money to finance the acquisition.
  • Lease agreements – needed if the buyer is purchasing leased property or equipment.
  • Bill of sale – needed if the buyer is purchasing company assets.
  • Non-compete agreement – protects the buyer by prohibiting the seller from starting a rival company.

Additional Procedural Formalities

Other procedural formalities that must be followed include the following:

Options for Selling a Limited Company

Your options for selling a limited company include selling all of the shares in your limited company or only a portion of its business. Unless you are the only shareholder, you need consent from your co-shareholders to sell your business.

Sale of Shares

A sale of shares results in a change in the company’s ownership structure. However, the company still owns all assets and obligations. You may sell your shares to other shareholders, a third party, or your business partner if you have one.

Review the provisions on share transfer in your company’s articles of association because selling your company may be subject to certain limitations. For instance, “pre-emption rights” may be imposed, which mandate that any shareholder wishing to sell shares first offer them to existing shareholders.

The articles of association may also stipulate that shares be offered back to the business through a “share buy-back.”

Sale of a Part of Your Company

An alternative to selling shares is selling a part of your company, such as a particular department or function. You must notify any affected employees of the changes, including information on the relocation packages or redundancy arrangements, if applicable.

Sale of Assets

When selling assets, the seller maintains ownership of the company. The company also retains its liabilities and obligations to creditors, including employees and vendors. The buyer may assume some of the seller’s debts as part of the purchase.

However, the seller remains liable for the full amount of any outstanding debts that the company incurred before closing. Equipment, accounts receivable, investments, inventory, and goodwill are examples of assets that could be sold.

Some business assets, however, may need to be transferred from the seller to the buyer with the approval of third parties, which can be a laborious and time-consuming process. For instance, business suppliers may agree to allow the buyer to take over supply arrangements.

Independent Legal Advice to Help You Sell Your Business

Preparing your company for sale might take a lot of time and effort. A professional may help with planning, selling, transferring, and determining the corporation tax, you’ll have to pay.

What to Consider When Getting Ready to Sell a Limited Company

Here are some considerations to make as you prepare to sell your company.

Capital Gains Tax

If you sold your company for more than its valuation, the profit you made is subject to “capital gains tax.” If you need to pay capital gains tax, check if you are eligible for advantages like Entrepreneurs’ Relief.

Transferring Liabilities

Liabilities like loans, taxes, accounts payable, and employee salaries are generally transferred to the company’s new owner. Naturally, the buyer will want to look into the liabilities before purchasing the business.

Companies House

New directors must be appointed if you sell the entire shareholding in your limited company. Update the company’s registered information by doing the following:

  1. Submit an AP01 form to Companies House upon the appointment of new directors.
  2. Report your resignation from the board of directors by filling out form TM01.
  3. Update the shareholder information and shareholdings by filing a confirmation statement.

The company’s statutory registers of directors, members, and individuals with significant control will be published on the Companies House public register, so ensure that they are updated.

Protecting the Business

Even if you believe the other party would preserve confidentiality, the fact that you are selling your firm may be sensitive information from a commercial standpoint.

A non-disclosure agreement (NDA) for prospective buyers should be in place once the business is ready to be offered.

Completing a Stock Transfer Form

You must fill out a Stock Transfer Form with the transfer of shares’ specifics. It includes information about the buyer and seller, the type and quantity of shares being transferred, and the buyer’s payment amount.

The corporation must record the information from the stock transfer form once it has been completed and the transfer has been approved.

FAQs

Here are some frequently asked questions about selling a limited company:

Summary

There are a lot of things to consider when selling your company. It requires a lot of time, paperwork and patience (not to mention a certain amount of courage). You should take your time and be thoroughly prepared before committing to anything.

Make sure you’re fully informed about the company sale process. Seek professional advice from a competent brokerage firm to help you throughout the whole procedure.

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