So, the dream of running your business is over. You may be moving on to your next venture, or setting yourself up for a comfortable retirement. Whatever your reasons for selling your business, you want to make the process as seamless and as profitable as possible.
Preparing your business for a sale
The potential buyers will carry out an in depth due diligence, so you want your business in the best shape possible. Ensure the premises and all assets are fully functioning and well maintained. Sell off any assets that your business does not need.
Potential buyers will undertake a full due diligence of your accounts and the business’ earning potential. Buyers will also want to see a business plan and financial forecast based on accurate previous figures to know the purchase will be a good investment. A financial adviser and lawyer will easily identify any red flags, and if your finances are not representative of your asking price, you may be forced to sell for less.
Asset or share sale?
Have you decided how you would like to sell your business? Businesses can be sold as an asset sale or a share sale. This is usually dependent on the nature of your business and the ownership structure in which it operates. Your lawyer will help you understand the best option for your business and support you through the negotiating process. How you chose to sell your business will impact what happens to the current employees and your tax obligations.
Talk to an accountant or financial adviser to discuss the best option to minimise tax deduction while staying compliant.
Sale and Purchase Agreements
Just like selling a house, there will be conditions that will need to be satisfied by both the buyer and seller before the sale is finalised. These will be outlined in the Sale and Purchase Agreement. Depending on the arrangement, the due diligence can be made prior to the agreement or as a condition of the agreement in which the agreement remains conditional until the buyer is completely satisfied with their findings. If they aren’t the agreement can be cancelled, or the price negotiated.
If you are operating from leased premises, the lease agreement will need to be transferred to the buyer. This requires the consent of the landlord. If you own the property outright, you may choose to continue owning solely the property and coming to your own lease arrangement. If the property is sold with the business, the Sale and Purchase Agreement must state that the title to the property must be transferred with the sale.
Non-Disclosure Agreements (NDA)
As you will be sharing confidential material to the potential buyer, it is important to have a NDA in place to restrict information being disclosed to third parties. Confidential information could include trade secrets, client databases, or even that your business is up for sale. NDAs can also include restrictions around hiring key employees or competing in a similar business should they choose not to buy.
The buyer may also want to include a Restraint of Trade in the final sale agreement prohibiting you from operating a similar business in the area.
If you sell your business in a share sale, employment may remain largely unchanged. If the business is sold as an asset sale, there is no legal obligation for the employees to remain in employment with the new business owner, but it is usually in the best interest to keep key employees and continue business as normal. Employees will effectively have to lose their jobs and be re-hired by the new employer.
As a seller of the business, you will have certain obligations to your employees before the business is sold. This can include notifying them of the sale of the business and paying any owed leave or entitlements.
If you choose to sell your business, MBC law will help you maximise its profitability while ensuring you understand your obligations. Contact us today.
These articles discuss New Zealand law, and are for informational purposes only. They do not constitute professional legal advice. Please consult MBC Law for information specific to your circumstances.