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Selling your company: understanding the legal process


One of the biggest areas of our work here in the Corporate team at Lupton Fawcett is legal advice on the sale of private limited companies.

We recognise the enormous importance of such a sale to our clients. The transaction often represents the culmination of a lifetime's work.

Whilst we do this work all the time – between us we will have acted on many hundreds of such transactions – we understand that the whole process will be a new experience to most sellers. So here is a short guide.

A seller may put a business up for sale or may receive an unsolicited approach. Once an interested potential buyer is identified the first step is to get in place a confidentiality agreement or non-disclosure agreement ("NDA").

This requires a potential buyer to keep confidential and not abuse any information provided by a seller in the "Target" company.

After a potential buyer has made an initial assessment of the Target on the basis of the information the seller is prepared to disclose at this stage, an offer to purchase may be forthcoming.

An offer should set out the key terms of the offer including, obviously, the price.It should also specify other key terms such as when and on what basis the price will be paid, as part may be retained, deferred and/or conditional, non-compete provisions (restrictive covenants on the seller) and whether the seller is required to stay on for a period. It’s helpful to ensure all the key points are covered as this prevents the transaction being de-railed at a later stage as the result of conflicting assumptions having been made by the parties earlier.

But we can be with you every step of the way.

Once the offer letter (sometimes referred to as "Heads of Terms" ("HoTs") is agreed, the next stage will be detailed due diligence.There will be commercial and financial investigations of the Target by the buyer and a legal due diligence questionnaire from its lawyers. All responses to due diligence should be carefully reviewed and catalogued, so there is no doubt as to what has or has not been provided.

Once the buyer and its lawyers have digested the information provided they will issue a draft Share Purchase Agreement ("SPA"), typically a document of some 80-100 pages.

This sets out the exact legal basis of the deal, including the price to be paid and how it is calculated, warranties to be given by the sellers, non-compete restrictions on the sellers and other standard provisions. If the HoTs were properly prepared there should be no surprises at this stage.

We will carefully review with you the warranties in the SPA, because these are promises given by a seller to the buyer. The buyer can sue a seller for compensation if a warranty is not true and the buyer suffers a loss as a result. We will help mitigate the potential impact of warranties by deleting or qualifying them or by "disclosing" facts that are inconsistent with the warranties. We will also amend the SPA to put general limitations on any claims that can be made in respect of the warranties.

Once the SPA and all related ancillary documents (such as share transfers, board minutes, and resignations) are agreed a "completion date" will be fixed.

We will liaise with you to ensure that all legal and practical matters are ready for the transfer of ownership from the seller to the buyer.

Once the documents are signed we will usually receive the purchase price into our client account, which we will then pass on to the selling shareholders.

Completion is often not the end of matters. There may be an on-going employment or consultancy arrangements where a selling shareholder assists the transition to the new owners. The warranties given by a selling shareholder remain live for a number of years. There may be deferred payments of part of the price to be paid, often based on completion accounts, an earn-out conditional on future performance targets or just withheld for a period against the possibility of any warranty claims.

We will still be there to advise and assist should any issues arise.

If you would like to know more about the process involved in selling your company or business please contact any member of the Corporate Team at Lupton Fawcett in Leeds, York or Sheffield.

Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.


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