Are You Selling Your Business?
Ensure All Legal Documents Are Up To Date Before You Sell!
Small business owners decide to sell for many reasons and, regardless of the reason, it’s a big step to take. Whether you want to sell your business because you’re ready to retire or because you’re keen to move on to your next corporate adventure, it’s important to have all your company documentation up to date before you sell.
Buyers can decide a purchase is too risky if the core paperwork is missing or unclear – or they might demand a price reduction or the creation of an indemnity.
This is why it’s essential to prepare all your documentation before you begin any sale discussions with potential buyers.
What Happens If Your Documentation Isn’t Prepared?
Potential buyers will carry out due diligence on your business before committing to the purchase.
As part of this process, buyers will investigate every part of your business, including:
- Employment contracts
- Corporate records
- Financial statements
- Ownership of business assets and lease / ownership of property
- Contracts with customers and suppliers
- Data protection compliance
If there is anything missing or unclear, most buyers will look for a price reduction, walk away from the purchase or ask for indemnities to provide protection from any hidden liabilities.
Indemnities provide certainty for the buyer that if a specific liability arises in the future, the seller will reimburse the buyer for this cost.
While indemnities are useful for buyers during the sales negotiations, they are time consuming to negotiate and add uncertainty – with indemnities, the seller isn’t able to fully move on from the business as there could be a direct financial obligation in place for many years after the sale, should something go wrong for the buyer at a later date.
It is far better to be prepared and ensure all your business documentation is up to date before you sell.
Six Key Documents To Update Before Selling Your Business
- Employee Contracts
Informal arrangements with staff for a small business might be more convenient at times, but it’s never a good idea to rely on these. Instead, always ensure you have a contract in place for every employee and contractor, as well as a current staff handbook, IR35 assessments if any off-payroll employees, and evidence of right-to-work checks. Without the relevant documents, there is a risk of employment claims after the sale and the potential buyer will likely want indemnities to off-set the risk. - Data Protection Documents
Businesses have to demonstrate compliance with the UK GDPR and the Data Protection Act 2018 – in terms of paperwork, this means having these documents:
* privacy policy
* evidence of staff training
* data breach response plan
* consent records
* Subject Access Request (SAR) procedure
* record of processing activities
* agreements with any third party handling data on your behalf - Technology
Even small businesses are often reliant on technology and buyers will want to know:
* who owns your branding, domain names and software
* if any third party could challenge your IP use
Ensure your website domain and brand assets copyrights are assigned to your company rather than an individual. - Corporate Records
Buyers expect to see all the relevant documentation relating to corporate records and shareholder agreements as any missing paperwork creates legal uncertainties. Buyers might ask for indemnities against future third party claims to ownership. Make sure you have the following documentation in place:
* statutory books
* shareholder agreements
* any powers of attorney
* shareholding structure - Customer & Supplier Contracts
As nice as informal agreements with small businesses are, it’s important to have clearly defined contracts in place with suppliers and customers. Buyers will expect:
* standard terms and conditions for sales and purchases
* contracts for clients and suppliers
* notice periods, termination clauses and liabilities clearly stated - Ownership of your business assets needs to be considered. Any property lease or freehold ownership should be checked.
Helping You Sell Your Business
Our specialist legal team understand the complex needs of business buyers and will help ensure you have fully prepared your business for sale before you start the process.
We recommend you carry out an audit of your paperwork 1-2 years before you want to sell, as this will give you time to make sure your documentation is complete, accurate and current.
By having the necessary paperwork in place before you sell, you are in a stronger position to negotiate with potential buyers. Gaps in documentation give buyers the opportunity to make demands around the price and indemnities.
We will help you with your pre-sale paperwork audit to ensure your business is fully ready before you sell – which, in turn, will help ensure the sale process is as straightforward and stress-free as possible.
To speak to us about your business documentation or selling your business, you can contact us at our Chorlton office on 0161 860 7123 or email chorlton@hlfberry.com or at our Failsworth office on 0161 681 4005 or email failsworth@hlfberry.com and we will be happy to help.
