How to Sell a Limited Company

Whether you are looking to exit your business, pursue new opportunities, or simply want to liquidate your assets, the selling of a limited company involves planning, consideration of legal aspects and careful negotiation.

Understanding the steps involved is crucial, from the initial valuation through to handover. What follows are some points to consider.

The Steps of Selling a Limited Company

1. Begin by getting a valuation of the fair market value of your company. This will be based on financial statements, value of assets, the company’s liabilities, and potential future income. It makes sense to appoint a business valuation expert to ensure accuracy.
2. Use the valuation to start the process of cleaning up your financial position to ensure that your company is in good standing. This includes addressing outstanding debts, contracts, or legal disputes that might hinder the sale. There is nothing to prevent you from selling a limited company with debts, if everything is clear upfront.
3. At this stage, it’s wise to keep the sale confidential until you are ready to make an official announcement. If news gets out too early, it may have a negative impact on employees, customers, or suppliers, and, when you are selling the company as a going concern, the important thing is to maintain its value during the sale process.
4. Seek the assistance of professionals such as accountants, solicitors, and business brokers who, preferably, specialise in mergers and acquisitions. They can guide you through the legal and financial aspects of the sale, ensuring compliance with UK regulations and ensuring business continuity.
5. You must be prepared for potential buyers to conduct due diligence on all parts of the business. This will involve a thorough examination of your balance sheets, contracts, customer relationships, and other critical aspects of your business. Well-organised documentation will make this process quicker and simpler.
6. Once you’re able to do so, you will need to develop a marketing strategy to attract potential buyers. A confidential information memorandum (CIM) that highlights the key aspects of your business, including financial performance, growth prospects and its competitive advantages will be invaluable, but should be drawn up by a professional adviser.
7. When you receive offers, enter into negotiations with potential buyers. You need to be clear about your expectations and terms. It’s not only about the sale price, but you also need to consider any conditions attached to the deal, such as payment terms, employee retention and potential earn-outs, where it is agreed that part of the purchase price will be paid in the future.
8. The new owners will, no doubt, need during the transition period, assistance with employee handovers, providing training and ensuring a smooth transfer of responsibilities, so terms for that process should be agreed.
9. Once you have reached agreement in principle, the key terms should be set out in a Heads of Terms agreement which will outline the agreed-upon terms. Whilst not a legally binding document, it can act as a basis for what will be contained in the final sale agreement. Your potential buyer’s solicitor will generally draft the sale agreement, which includes all the legal terms and conditions, and should cover everything from the purchase price to the transfer of assets and liabilities, or the selling of assets. Your solicitor will help explain all of the key points and ensure that the agreement is reasonable.
10. When a final agreement has been reached, both parties will sign the sale agreement, and the sale will be completed, transferring the ownership. At this point, the buyer will assume control of the company. The relevant authorities, such as Companies House, should be notified of the change in ownership to ensure compliance with legal requirements.

Selling a limited company is a multi-faceted process and seeking professional advice from the start, and being well-prepared throughout, will increase the likelihood of a successful and profitable sale.

The Corporate and Commercial law team at DFA Law has extensive experience in the buying and selling of businesses. Contact Kirsty Simmonds or call 01604 609560 to speak to one of the team today.