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Thinking of selling your business? Legal tips for an effective exit strategy

25 October 2007

The decision to sell a business may be triggered by any number of reasons: lack of management succession; ill health; the burden of managing the organisation, or simply the wish to spend more time doing one’s own thing. Whatever your reasons, once you have made the decision to sell, you need to plan ahead. Here are some tips on an effective exit strategy.

Make the business attractive

A good starting point is to analyse the business with a view to maximising profitability and keeping expenditure to a minimum. Your accountants will be able to advise on this.

Think about succession  

Potential buyers may be concerned if the business is heavily reliant on your management. Identify successors and develop an effective management team. If a buyer wanted you to stay on as a consultant after the sale to maintain continuity and preserve commercial relationships, would you be prepared to do so?

Positive publicity

Take advantage of ways to raise the profile of your business if you can. And you may need to consider ways to add value to your ‘brand’.

Method of sale

If the business is unincorporated you have no choice but to enter into a sale of business (an ‘asset sale’). If the business is operated by a company, you need to consider whether you would be better served by a share sale or a sale of business. A share sale offers various advantages to the seller. Disruption is minimised as it is ownership of the company, rather than the business, that is being transferred. It is often simpler to transfer the whole company than to identify the individual assets being sold (necessary on a sale of business). Also, of course, the seller gets a clean break.

A share sale can be more tax efficient as there is a single charge to tax on the disposal of the shares. On the sale of a business by a limited company there can be a double charge, with tax levied on the company at the time the business is disposed of and again when the owner extracts the proceeds. You will need expert tax advice.


Tax issues are also likely to have an influence on the timing of the sale. Personal matters, market sentiment, competitor activity and prevailing property values are other issues that may also have a bearing on the timing of the sale.

Check the small print

A review of the business’s documentation is essential. Problems here can slow a sale and can even derail the whole process. Legal input is strongly advisable at this stage. For example, are all contractual relations fully documented? It is not unusual for a business to rely on one major client yet have no written contract in place. This could affect both the value and the marketability of a business. Contracts should also be checked for ‘change of control’ clauses: can the other contracting party terminate the agreement if there is a change in the ownership of your business?

Statutory records

If the business trades through a company, statutory books and records should be full, accurate and up-to-date and correct filings should have been made. Does the record at Companies House reflect the reality of the company?


An important issue to consider is how employees will be affected by the proposed sale. Employment law is complex and the penalties for infringement are severe. It is essential to seek specialist advice on employee matters.


You may want to ensure that pre-contractual negotiations with a potential buyer are covered by an appropriate confidentiality agreement, and perhaps lockout provisions. A confidentiality agreement is vital where your business is to be acquired by a competitor. And be careful not to make pre-contractual representations you might later regret. If in doubt, check with your lawyer.

Intellectual property

Depending upon the nature of the business you may require specialist intellectual property advice.

Competition law

Another area of growing importance is competition law. Will the proposed sale fall foul of UK or EU anti-competition legislation?

The sale process

Once the business is ready for sale, potential buyers can be identified and approached with a view to a process of negotiation – ideally with a number of interested parties.

Doing the deal

Heads of Agreement are usually agreed with the buyer, with the input of your legal and financial advisers. The buyer’s accountants will then subject the business to the process of financial due diligence while the lawyers will begin the sale and purchase documentation. Generally the agreement will contain warranties and indemnities, which have to be considered carefully and, where appropriate, disclosures made against them.

Post-completion, the lawyers will ensure that all formalities are complied with. The purchaser may wish to work with you to jointly publicise the deal, but if you are already off doing your own thing, you may just leave them to enjoy the champagne and the photographers!

As always, if you need commercial and pragmatic legal advice, we’re here to help so please get in touch.

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Disclaimer: All legal information is correct at the time of publication but please be aware that laws may change over time. This article contains general legal information but should not be relied upon as legal advice. Please seek professional legal advice about your specific situation - contact us; we’d be delighted to help.
Chris Wills LLB (Hons)
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