selling your business

Selling YouR Business

CATHERINE GANNON

HELEN CURTIS

What we are covering

• Preparation for Sale

• Sale of Shares or Sale of Assets

• Heads of Agreement

• Deferred Consideration

• Indemnities and Warranties

• Tax

Preparation for Sale

• Make sure you have formal agreements in place

with your suppliers and customers

• Employees and directors

• Run your own due diligence

• Power to sell – articles and shareholders’

agreements

• Consents and assignments

• We can send a checklist of issues to think about

Financial due diligence

• Is the business solvent

• What debts will need to be repaid by the

buyer

• Dividends pre-sale

• Cash in the bank and working capital

• Completion accounts

Valuation

• How much is the business worth

• Obtaining details on past sales difficult

• Price earnings multiples

• Recurring fee income

• What is really being sold

• Dealing with brokers – fees and commissions

Sale of Shares or Sale of Assets

• Share Sale

• Asset Sale

Heads of Agreement

• Not legally binding

• Exclusivity period

• Important discussion areas you might not

consider:

- anti-embarrassment clause

- restrictive covenants

- timing of consideration

Terms of Sale

• When will you be paid

• How much will you be paid – cash or shares or

both

• Restrictive covenants

• Ongoing responsibilities

• Claw backs

Deferred Consideration

• Earn outs

• Delayed payments

Warranties

• Principle of Caveat Emptor

• Contractual statements

Indemnities

• Cap

• Disclosure Letter

Conditions Precedent

• Buyer’s due diligence

• Different for Asset Sale or Share Sale

• Non-Assignment provisions in contracts

Intellectual Property

• Due Diligence

• Evaluation

• Purchase agreement warranties

• Transfer

How much will you be left with

Entrepreneur’s Relief

• Overview of the relief

• Material disposals

– Disposal of shares

– Whole or part of business

– Disposal of one or more assets

• Share options

What is Entrepreneurs’ Relief

• Applies to gains made on disposal of all or part

of a business

• Includes assets following cessation

• Applies to first £10m of gains

• Charged at 10%

• Lifetime limit of £10m

• No minimum age limit

What does it mean in terms of tax

• Business sold for £876,000

• Less: cost of shares (£1,000)

• Capital gain £875,000

• Less: annual exemption £10,900

• Taxable gain £864,100

• ER CGT @ 10% £86,410

• Walk away with £789,590

Qualifying Business Disposals

• Shares or securities in a trading company

• The whole or part of a business

• Certain assets used in a business which has

ceased

• Certain personal assets used in a business.

Shares in a trading company

• Conditions to be met for one year period

ending on date of disposal

• Relief available if company has ceased

trading

• Provided held at least 5% for one year on

date of disposal, acquisitions over the 5%

will qualify even if held for less than a year

• Employee or officer – no minimum hours

Whole or part of a business

• Owned for one year period ending with date

of disposal

• Disposal of all or part of the business as a

going concern

• Any trade, profession or vocation

• Assets not used for the business will not

qualify

• Case law on what constitutes disposal of

part of a business

Assets used on cessation of business

• Conditions to be met:

• Owned by individual throughout 1 year

ending on date which business ceases

• Business ceased to be carried on in the

period of 3 years ending on date of

disposal

• Assets not used for the purposes of the

business excluded

Personal assets used in business

• Disposal by partner or shareholder of

personally-owned asset

• Conditions to be met

- disposal (which qualifies for ER)

- withdrawing from business

- throughout 1 year prior to disposal

- not used for unconnected purposes

Winding up the company and ER

• Procedure for winding up

• Capital payment or dividend payment

• Conditions for ER

Taxation of earn outs

• Pay tax upfront or later

• Valuation with HMRC

• Payment dates – manage cash flow

ANY QUESTIONS

How can we help you?

Visit www.gannons.co.uk for further information

http://twitter.com/#!/gannons_law