People sell their limited companies for all sorts of reasons. They might be looking to retire from self-employment, have hit hard times, or want to sell it for a profit.
Like most aspects of registering and running a business, selling your UK limited company usually means no shortage of paperwork. It’s well worth taking a step back to think about your exit strategy and how you plan to get the business ready for sale. A bit like selling a house, you want the best possible price with the least amount of fuss – so in this article we’ll explain how it’s done.
Step-by-step process for selling a UK company
Going through all the checks and processes of selling a company can be quite confusing. There are usually several stages, including:
- Deciding what you want the final outcome of the sale to be
- What will be included in the sale
- Getting advice from a solicitor and/or accountant
- Preparing relevant documents such as accounts, budgets, and forecasts
- Valuation
- Buyer due diligence, permissions and consents
- Negotiation
- Tax planning
- Completion
- Reporting
What do you want to achieve from the sale?
A ‘successful sale’ will be very different from one person to the next, so it’s up to you to decide what you’re aiming for by selling. This might depend on:
- A goal completion date
- Whether or not you want to stay involved after the sale
- The price you’re hoping to get
- What happens to any existing employees, assets, or even the brand itself
Considering these could have a big impact on the way you approach and structure the sale!
Can I stay on as a director or shareholder after I sell my company?
This largely depends on the agreement you make with the new owner. Continuing to be a director for a set period of time after the sale is fairly common practice, and can make the handover smoother. It also reduces risk for the new owner by giving staff, suppliers, and clients a sense of security and continuity.
Decide what’s included in the sale
Selling the shares which show who owns a company is one thing, but there might also be company assets to consider, such as equipment, furniture, cash, inventory, and goodwill (which is the value of your brand and how people perceive it). And then there might also be patents, copyright, or Intellectual Property which the company owns, or which you own but which relates to the company.
You might decide to sell some of the company’s assets separately to the shares, or simply bundle them all up together. It’s entirely up to you, so a letter of intent can help the potential buyer understand what’s on offer before working towards a more formal final agreement.
Can I just sell part of my limited company if I want to?
Yes, you can, and this is quite common in companies which want to sell shares in order to raise funds. Just be aware that selling part of your company can mean you have less control depending on the type of shares you sell, or the agreement you have with the buyer. It’s best practice to draw up a formal shareholders’ agreement, to help avoid future complications or disputes.
It’s also worth keeping in mind that shares are considered to be assets, so selling them for a profit means you’ve made a ‘capital gain’ and need to pay Capital Gains Tax.
Transferring liabilities in a company sale
Most companies have liabilities, such as credit cards, tax, loans, or even staff wages to be paid. They’ll generally be transferred to the new owner when the company’s sold, but the buyer will obviously be very keen to understand the extent of the liabilities before they commit to anything, so prepare for lots of questions!
Preparing documents
As well as preparing your sales pitch, you’ll need your company’s financial reports and forecasts. Any potential buyer is going to ask a lot of questions, so you’ll be able to pre-empt a lot of these.
Valuing the company
Make sure you appraise each asset individually, so you know their individual value and the overall value of your business. This then shows you what your business is worth in total.
Do I need permission or can I sell my company to anyone?
Yes, in theory you can sell your company to anyone you like, but there might be restrictions relating to national security laws, the potential buyer, and even your own company rules.
Doing due diligence checks on potential buyers
If you’re selling a car or games console, then you’ll probably just hand it over to whoever comes along with the right amount of money. Unfortunately, selling your company isn’t so straightforward!
It’s a very serious offence to transfer ownership of a company to someone who is sanctioned by the UK government. This includes anyone with a connection to someone on the list too, so it’s essential that you know:
- Who the buyer is: Including anyone connected to them who might be ‘hiding’ behind the buyer as a way to try and get around the sanctions against them
- Where their funds are coming from: Make sure they’re not related to any prohibited or sanctioned activities, people, or organisations
National security
Companies dealing in particularly sensitive industries will usually need to notify the government and ask permission before they can sell to someone else – even if they’re only selling a stake in the business.
This tends to apply to companies with contracts relating to defence, advanced technology, or infrastructure which is critical to the function and safety of the UK. Check which areas are affected by the National Security and Investment (NSI) Act.
Checking any other existing agreements
It’s well worth checking the terms of any funding or loan agreements you currently have in place in case they prevent a sale. Some of them can be very strict, so try to do this before getting too far.
Your own company’s rules
If you’re the only shareholder and director in the company, then you can pretty much sell it without consulting anyone else – as long as the other rules around sanctions and security are met.
If there are other shareholders, then the company isn’t entirely yours to sell. Ownership will be shared between you depending on how many shares you each own, and what type they are.
You’ll need to take a look over your shareholders’ agreement and check the company’s articles of association for any provisions you must make. The other shareholders will normally need to agree to the sale.
Selling just your own shares
You can still sell your own shares if you want to but again, just make sure there isn’t anything in the shareholder’s agreement or the company’s articles of association which restricts this.
In some companies the other shareholders have pre-emption rights which they need to waive for the sale to go ahead. Pre-emption rights protect shareholders by giving them the power to prevent a sale to a buyer they don’t want to be in business with.
Negotiations
There isn’t a set formula for negotiating the sale of a company, so the way you approach this very much depends on what you’re willing to accept. Some general points to consider might include:
- Price and payment structure
- Whether you’re selling shares or including other assets
- The transfer of any debts or other liabilities
- What happens to existing staff
- Whether you’ll retain any control or a position
- Any competition clauses (for instance, could you go out the next day and start the same company all over again, or are you legally restricted from doing something similar for a period of time?)
- The scope and outcome of due diligence
- Target completion date
- Responsibility for transaction expenses
- How the transaction will take place
Paying tax after you sell your business
The way you pay tax can partly depend on what you’re selling and who actually owned it.
Companies are a legal entity in their own right, so selling any assets it owns means the company will pay Corporation Tax on any profit it makes.
Selling your own shares is a separate process; the buyer will take ownership of the company, but the company still owns all its assets. You, as the individual who makes a gain from transferring your shares to someone else, will pay Capital Gains Tax on the profit.
You might be able to claim Business Asset Disposal Relief to reduce the tax you owe after selling your shares.
Who do I need to tell if I sell my limited company?
You’ll need to tell everyone who has a connection to the company, from customers with outstanding work, to suppliers, staff, and beyond. You must also make sure that you carry out your statutory reporting obligations, and let Companies House and HMRC know!
Telling Companies House about the sale of your company
You’ll need to let Companies House know if you sell your company or make any other significant changes to it. There isn’t a single process to report the sale, so you’ll need to go through each administrative change separately:
- Companies are legally required to have at least one director at all times, so if you’re the sole director and you’re not staying on after the sale, you must appoint a new director before you resign. Submit an AP01 to tell Companies House about the new director.
- Complete a TM01 Form to report your resignation as director
- File a confirmation statement to report the transfer of existing shares
- Use an SH01 to report any completely new shares which are issued
- Don’t forget to update the company’s statutory registers of members, directors and details of ‘people with significant control’
Selling your company and HMRC
There are a few factors for HMRC; the company’s own tax affairs, as well as your own and the buyer’s.
- You’ll need to complete a Company Tax Return to cover the accounting period up until the sale date
- Complete a Stock Transfer Form with the details of the share transfer, confirming who is buying, who is selling, and the amounts/values involved. The buyer is normally responsible for sending this to HMRC if they owe stamp duty.
- Report your capital gains using the online service or on your personal tax return if you send one (such as a Self Assessment)
- If your company is VAT-registered, then you might be able to transfer its VAT registration to the new owner, or you might need to cancel your registration. There’s a time limit on it, but after deregistration you’ll still be able to reclaim VAT which you paid whilst registered.
Could I make my company dormant instead?
If you don’t want to operate your company right now, you can make it dormant instead. This means it will still exist legally, but won’t be trading. Tax-wise, you’ll need to tell HMRC your company is dormant and confirm it’s not taking in any income from trade.
Even once dormant, you’ll still need to submit annual accounts and a confirmation statement to Companies House. It’s a bit different from a company which is simply not trading.
How long does it take to sell a limited company in the UK?
How long is a piece of string? Company and sector appeal, location, revenue, cash flow, time, and even sheer good luck all play their part. It’s about how comprehensively you prepare your company for sale, too.
You might be able to speed up the process by being as transparent as possible, right from the start, but just be wary of giving away sensitive information – especially before getting any non-disclosure agreements in place.
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