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.
Here are some steps on how you could sell your limited company:
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.
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.
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.
Review all documents, then work toward a mutually convenient sale date. The essential documents that you should check are as follows:
Other procedural formalities that must be followed include the following:
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.
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.”
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.
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.
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.
Here are some considerations to make as you prepare to sell your company.
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.
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.
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:
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.
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.
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.
Here are some frequently asked questions about selling a limited company:
A small company will typically stay on the market for 6 to 8 months, although depending on the offers and agreement structuring, it can vary greatly. The ease of a business sale depends on a wide range of factors, including the market conditions, the company’s valuation, and the calibre of the business broker you choose.
Yes, you can. Note, however, that depending on the sort of shares you sell or the terms of your agreement with the buyer, selling a portion of your business may result in less control. It is best practice to have a written shareholders’ agreement to avoid future financial or legal pitfalls.
Yes, you can. It is common practice for the new owner to request the seller to continue serving as a director or shareholder. This enables the new management to gain more knowledge of the company during the transition phase.
A dormant corporation is nonetheless regarded as an entity despite not conducting any activity. Following HMRC’s confirmation of your company’s dormancy, you are no longer required to pay Corporation Tax or submit another Company Tax Return (unless the HMRC explicitly sends a notification to submit a new Company Tax Return).
You are still required to submit annual accounts and a confirmation statement to Companies House even if your company is dormant.
Shares of a private limited company cannot be offered to the general public. To sell shares to the general public, your company must be registered as a public limited company (plc). The corporation may need to appoint advisors to comply with all regulatory requirements to offer shares to the public.
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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Kasra Dash Director
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