Now is the time to sell a business

Nov 25 2009 by Robin Adams, The Journal

FOR business owners considering an exit over the next two to three years there may be no better time to sell than in the next six months.

The 50% income tax rate from April 2010, and the hole in public finances makes an increase in capital gains tax from 18% extremely likely in 2010. The net proceeds on a sale could fall dramatically.

Now is therefore a good time to look at what needs to be done to make your company or business attractive to a potential purchaser or its backer. To maximise your return, proper preparation for the disposal is essential.

On a share sale make sure the shareholder records are up to date. Consider how minority shareholders are to be dealt with. Do the articles or a shareholders’ agreement restrict the sale of shares?

Identify key assets. Are they owned by the company? If not, do they need to be transferred into the company or their use formally documented? You might want to transfer freehold property out of the company to shareholders or their pension funds prior to a share disposal or put in place a formal lease in favour of the company.

Consider whether any other assets should be transferred out of the company prior to sale.

Trading contracts should be reviewed for onerous or unclear obligations. New terms of business might be appropriate and variations or new terms negotiated with existing customers or suppliers.

Are intellectual property rights properly protected? Are contracts freely assignable?

Put right defects in employee contracts (with agreement). Make sure the company is complying with all its obligations in relation to health and safety, pension scheme access and data protection.

Tax affairs should also be checked to ensure compliance and ensure there are no unusual tax liabilities that might affect the price for the company. The tax implications of any transaction should be considered; there may be ways to minimise the tax charge.

You should also ensure the accounts and financial records are in order.

Whilst any purchaser will want to know the business is sound, failure to address these kinds of issues can cause delays, difficult negotiations and, potentially, price reductions.

Robin Adams is a corporate partner at Watson Burton law firm, Newcastle