If you are the sole shareholder and director of a private limited company, you can sell the business and all of its assets at any time if you no longer want to own and manage it. If you are considering this course of action, there are a number of important factors and responsibilities to take into consideration before you sell your limited company.
Below, we outline the first steps you will need to take, but we strongly recommend that you consult an independent, specialist business advisor for professional advice and guidance before taking any steps or making a firm decision to sell your limited company.
First steps and initial considerations
If your company has other investors (i.e. shareholders), you cannot simply sell the business without their approval. However, you can remove yourself from the company by selling your own shares and resigning as a director.
If you are the sole director and shareholder, you will not have to consult anyone else before making the decision to sell some or all of your shares, but you must take a look at the current market and economic conditions to determine whether it is the right time to sell your limited company.
You should also think about the potential Capital Gains Tax you may have to pay from the profit of the sale.
To sell your shares, you will need to complete a Stock Transfer Form with details of the transaction. If the company has other directors and shareholders, they will need to approve the transaction. If you’re the only director and shareholder, you alone can approve the transfer of shares to the new owner(s).
You may find that a new owner wants you to remain as a director or shareholder for a period following completion of the sale. This is becoming increasingly common because it allows the new management to learn more about the business during a hand-over period.
It also provides clients and suppliers with a sense of security and continuity, thus reducing any potential risk for the new owner.
Increasing the value of your company
To ensure your business appeals to prospective buyers, you should be able to demonstrate a consistently strong financial performance over the past two or three years at least.
You should consider the value and current profitability of your company and its assets, the brand image and reputation of your business, your client relations and retention rates, sales history and future earnings forecasts, and potential risks for the buyer due to a change in management.
Satisfying due diligence checks
Serious potential buyers will appoint solicitors and accountants to carry out due diligence checks on your company before completing the sale. This is to ensure that your business is sound and presents minimal risk to the buyer. They will use this information to make an informed decision.
They may modify the terms of the sale according to the information that is gathered. You will be expected to show profit and loss accounts, company tax returns, lease agreements, details of any outstanding loans and liabilities, and any payments or credits due from suppliers and clients.
To satisfy these due diligence checks, your accounting records must be up-to-date and present a true and fair view of your company’s financial position.
Your annual accounts and tax returns should also be in order. You must finalise (or be in the process of settling) all outstanding liabilities with HMRC, creditors, suppliers, and employees. You should also be able to account for all credits or liabilities associated with existing clients.
It’s best not to inform your staff, suppliers, and competitors that you are planning to sell your limited company until everything is in order. Their reactions could negatively impact your company’s profitability.
When the time is right, you should notify your employees about why and when the business is being sold, and whether they are receiving a redundancy package or being kept on by the new owner after the the company is sold.
Do not give too much information to potential buyers before carrying out detailed checks and putting non-disclosure agreements in place.
Notifying Companies House when you sell your limited company
You can notify Companies House about the sale of your business by updating the registered details of your company. To do this, you will need to:
- Appoint a new director on Companies House Form AP01 (this must be done before you resign because private companies are legally required to always have at least one appointed director)
- Report your resignation as a director on Companies House Form TM01
- Update shareholder details and shareholdings by filing or updating the Confirmation Statement
This information will be updated on the public Companies House register. You must also make sure that the company’s statutory registers of directors and members are updated accordingly.
Requirements for HMRC
If your company is registered for VAT, you can transfer the VAT registration to the new owner.
When the business has been sold, you will need to complete a Company Tax Return to cover the accounting period up to the date of the sale. You will also need to pay Corporation Tax on profits made during that time, including chargeable gain from the sale of business assets.
A Self Assessment tax return should be filed by the appropriate deadline to report your personal income and tax liability.
HMRC requirements can be a complex affair when selling a business, so we would advise appointing an accountant to assist with this process to ensure that everything is carried out properly.