Selling a Business/Company
1. As a preparation for the sale of the company it is vital to make sure all the documents are in order. That will save time in a process of negotiations and protect the seller from potential liabilities.
2. A starting point for the seller would be determining the value of the business, then setting a satisfying price based of that value. Value of the business will be determined on a basis of such factors as past profits and cash flows, sales growth, price of the assets. A necessary step is obtaining the advice from an accountant or a financial advisor.
3. Generally, selling the company via share purchase is more advantageous for the seller as it results in a more favourable tax treatment. Additionally, sale of the shares achieves a clean break between the shareholder and the company. It is also a less complicated transaction.
4. The seller should make sure to enter into a confidentiality agreement with the buyer to make sure that the internal information disclosed to the buyer in the process of negotiations does not go public, especially if the transaction is not completed. The confidentiality agreement should be entered into before any meaningful negotiations start so trade secrets and other sensitive information of the seller would be protected.
5. The seller should disclose potential issues by providing any information the buyer asks for in a process of due diligence. Concealing information or giving wrong information might open the seller for the liability.
6. The seller will want to ensure the buyer is liable for the costs of employees termination after the closing of the deal.
7. The seller needs to make sure that all the warranties made in a purchase agreement are accurate, but he might also want to negotiate to limit his liability for the breach of the warranties.
8. Ideally, the buyer will pay full price at completion, but that is not always the case. Sometimes the buyer will want to defer the payment as a method of protection should there be any claims under the warranties or other complications. If the buyer wants to pay a part of the purchase price at a later time, the seller has to ensure he has all appropriate documentation and secure that unpaid part of the purchase price by taking security over certain assets, using letters of credit, or other methods of taking security.
It is advisable to seek professional legal advice when selling a business in order to clearly understand your legal responsibilities and protect your business from the possible liabilities that might arise.
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