Corporate, Tax & Legal

The way a business is structured prior to a sale can determine the value a business owner receives at completion. It is therefore highly important to address the structure of the business and understand the mechanics of a transaction as early into the process as possible.
For a business preparing for sale, the following actions can be taken to enhance the value of the business:
Owners’ intentions: A business owner should clearly set out their intentions prior to embarking on a sales process and the time horizons they intend to work towards so that a suitable corporate structure can be arranged. Does the business owner plan to retire and wants to maximise net proceeds? Does the business owner plan to use the proceeds to reinvest into property or other ventures?
Ownership structure: The ownership structure of the business should be understood in advance to allow time for any necessary reorganisation. The interests of all owners should be considered (family members and non-family members).
What is being sold and what isn’t: The assets that are not being sold need to be considered and a strategy established for the best way to structure a deal. If assets are held outside of the business by the business owners there needs to be a strategy established to efficiently transfer the ownership of the assets into the business.

Tax

Tax should be considered before, during and after a business sales transaction and the importance it plays in the value a business owner is able to extract from a sale cannot be expressed enough.
For a business preparing for sale, the following actions can be taken to enhance the value of the business:
Identify potential liabilities: Any potential liabilities for tax that are a result of actions the owner had taken prior to sale should be considered and the appropriate actions taken (e.g. settling liabilities prior to sale or disclosing the nature and value of potential liabilities).
Compliance: Ensure the business has been compliant in filing tax returns and accurately recording and paying tax.
Corporate structure: The corporate structure should be considered in conjunction with the tax structure as this will determine how viable and tax efficient certain mechanics of a transaction will be.
Integration of taxes: Be clear on the relationship between taxes to ensure a gain in one area of the tax legislations is not a loss in another area of the legislation.
Tax planning: Careful tax planning should be conducted for the business owners and family to ensure family wealth is protected.
Carefully consider “prior to sale” remuneration: There may be a more tax efficient way of extracting remuneration from the business when considering a business sale and this should be carefully considered.
Understand the liability prior to sale: The potential tax liability should be calculated prior to sale to understand the net proceeds that will be received.
Tax clearance: “Prior to sale” tax clearance should be obtained to ensure relevant tax relief can be obtained for the shareholders on sale

Legal

The legal standpoint of the business and its owners should be carefully considered prior to a sale to ensure there are no unnecessary disagreements, delays in due diligence or deal breakers.

For a business preparing for sale, the following actions can be taken to enhance the value of the business:

Review statutory information: Ensure the business’s statutory books are up to date and accurate and ensure accurate information has been filed at Companies House.

Shareholders’ rights: If a shareholders’ agreement has not been created prior to a sale and the Memorandum and Articles of Association does not have specific clauses included to address the shareholders’ rights in a business sale scenario, it is recommended that this is addressed prior to sale. Clear documentation of the shareholders’ rights will avoid any future doubt and complications during a transaction.

Litigation: Ensure that any ongoing litigation the business is currently involved with is disclosed and the outcome of the litigation is measured (monetised if chance of liability is likely).

Documentation: Collate and retain copies of all business statutory documentation and filed information.

Due Diligence: The business owner should review the information that will be expected from them prior to sale. Due diligence is typically a time-consuming exercise that can exhaust an owner’s resources and time and pre-emptive preparation can prove to be invaluable later in a sale process