What To Expect When Selling Your Business

Here at Paddle & Cocks, we frequently get contacted by people who are selling a business for the first time. They say they have no idea how the process works or what to expect.

We are on hand to help demystify and assist with the selling process, so we have set out a brief outline of how the process works if you are a seller:



1.  Pre-Negotiation Confidentiality Agreement

The first step in the process is designed to protect confidential information. Before entering into detailed negotiations regarding selling your business, you must ask the potential buyer to enter into a short agreement with you to protect the confidential information of your business which you may have to disclose to the buyer to reach an agreement on the purchase. This is known as a ‘Confidentiality Agreement’, a ‘Non-Disclosure Agreement’ or is sometimes referred to as an ‘NDA’.

2.  Heads of Terms

Once you have agreed to a deal with a prospective buyer you need to set out an outline of what has been agreed between you so that there are no fundamental misunderstandings that are likely to derail the transaction at a later stage in the process, perhaps once both parties have already incurred substantial legal costs. Sometimes, an e-mail between the parties setting out bullet points of the main terms of the deal will suffice.

In complex situations, a more formal approach may be required and the buyer’s solicitor will draw up a short document called ‘Heads of Terms’ or ‘Heads of Agreement’ which sets out the outline of what the parties have agreed and both parties will sign it to show their agreement to the terms set out in it. The outline terms relating to the transaction will not usually be legally binding under such a document as they are still subject to further detail being agreed between the parties under a longer definitive agreement. 

3.  Asset Purchase Agreement/Share Purchase Agreement

Once the terms of the deal have been agreed then the transaction can start in earnest. It is usually the prerogative of the buyer’s solicitors to prepare a first draft of the main transaction document. This will be either an Asset Purchase Agreement or a Share Purchase Agreement depending on whether you have agreed to sell the company's assets and goodwill or whether you have agreed to sell the company.

4.  Due Diligence Process

At the same time as the buyer’s solicitor starts to prepare the main transaction document, they will also start to prepare questions for you to answer as part of the buyer’s legal due diligence process. If you are selling a property as part of the transaction there will be two sets of questionnaires and these will usually be handled by two different lawyers on your behalf: the Legal Due Diligence Information Request will be sent to your Corporate Lawyer and a set of property related enquiries know as CPSE enquiries will be sent to your Property Lawyer.

It will probably take some considerable time for you to provide the information requested. This is when you will discover the importance of keeping your company’s records in good order over the proceeding years as the easier they are to access, the easier it will be for you to respond to these questions.

5.  Agreement Reviews Leading To The Final Agreement

Once your Corporate Lawyer has received the first draft of the main transaction document from the buyer’s solicitor, your Corporate Lawyer will review it with you, make some necessary changes to the document and then return it to the buyer’s solicitor. This process will continue backwards and forwards until such time as the parties have reached a final agreement on the terms. This can be a long and often stressful part of the transaction.

6.  Additional Documents

There will be some additional documents that will be drafted by the buyer’s solicitor which run alongside the main transaction document. These could be a separate Deed of Assignment of Goodwill and Intellectual Property and other smaller documents usually referred to as ‘Ancillary Documents’ which deal with authorisations for the transactions (known as ‘Minutes and Resolutions’), resignations of directors (where relevant on a Share Purchase) and notifications for the Companies House Register again on Share Purchases.

7.  Completion

Once all of the documents are agreed the parties will each sign their copies and lawyers on both sides will swap scanned copy documents to be held to each other’s ‘order’ until such time as completion occurs. The buyer’s solicitor will then send payment to the seller’s solicitor and the two solicitors will agree that ‘Completion’ has occurred. The sale is now complete and your solicitor will transfer the balance of the purchase price over to you.

Looking For A Quality Business Lawyer Near Me? Trust Paddle & Cocks

Our advice is to have your chosen solicitor instructed to help you at the beginning of the process outlined above as they can often add value to the early stages of the transaction and avoid you falling into traps where agreement is reached on a vague understanding between the parties, but no-one has drilled down on it sufficiently to understand whether the agreement reached is viable in reality and in some cases, whether it is even legal.

Experienced corporate lawyers have seen many variables before and are easily able to spot the potential pitfalls at this stage, saving time and money in the long run. If you’re looking for a solicitor to help you sell your business, get in touch with Paddle & Cocks today.