Limited companies exist as distinct legal entities when they are incorporated (registered) at Companies House. This means they can be sold to other people, just like any other form of property. Companies continue to exist beyond the ownership or life of their original owners, unless they are legally dissolved (closed).
If you are the sole shareholder and director of a private limited company, you can sell your business and all of its assets if you no longer wish to own and manage it. If you are entertaining this course of action, there are a number of important factors and responsibilities to take into consideration.
You should consult an independent specialist business advisor for professional advice before making any decisions, but we will take a rudimentary look at what you should be thinking about if you are serious about selling your company.
The first steps
If your company has other investors (shareholders), you cannot simply sell the business without their approval. You can, however, sell your own shares and resign as a director, thus completely removing yourself from the business.
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 the shareholdings in your business, but you must take a look at the current market and economic conditions to determine whether it is the right time to sell. You should also think about the potential Capital Gains Tax you may have to pay from the profit of the sale.
A Stock Transfer Form should be completed with the details of the transaction, the board or members will need to approve the transaction (dependent on the company’s articles), update their register of members, as well as updated the register of persons of significant control if needed.
You may find that a new owner wants you to remain as a shareholder in the company 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 the potential risk for the new owner.
Increasing the value of your company
To ensure your business will appeal 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 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, tax returns, lease agreements, details of any outstanding loans and liabilities, and any payments or credits due from suppliers and clients.
To ensure you 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 be in order, you should finalise (or be in the process of settling) all outstanding liabilities with HMRC, creditors, suppliers and employees, and be able to account for all credits or liabilities of your existing clients.
Do not inform your staff, suppliers and competitors that you are planning to sell your business until everything is in order, because 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 sale of the company. Do not give too much information to potential buyers before carrying out detailed checks and putting non-disclosure agreements in place.
Notifying Companies House
You can notify Companies House about the sale of your business by updating the registered details of current directors, secretaries and shareholders. You must state the date from which you will no longer be appointed as a director. You will have to complete a statement of capital as part of an annual confirmation statement (previously the annual return) to provide details about the sale of your shares and to remove yourself as a shareholder of the company from the public record.