People sell their limited companies for all sorts of reasons. They might be looking to retire, hit hard times, or want to generate a profit. Sometimes they simply don’t wish to run the company anymore, and are looking for an out.
Selling your UK limited company usually means no shortage of paperwork! Before ploughing ahead, it’s well worth taking a step back and thinking about 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.
What are my options for selling?
The shares you have in your company can be sold to a partner (if you have one), to other shareholders, or to a third party. You might even decide to transfer them to a member of your family.
Do I need to ask or tell anyone before selling my company?
This depends on whether you’re the sole shareholder/director or if there are other people in the business with you.
If you have any business partners or there are other shareholders
Deciding to sell the company isn’t just your decision alone. You will need to take any shareholders’ agreement into consideration, and check the articles of association for any provisions you must make. Having said that, you can sell your own shares (therefore removing yourself from the company) before tendering your resignation as a director.
You should also check if the other shareholders have pre-emption rights (which they would then 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.
If you’re the only director and shareholder
You can simply sell your company without consulting anyone else – you’re the only one who needs to approve the transfer of shares to the new owner. But as we’re accountants – we strongly recommend you take advice! It’s also worth checking any funding or loan agreements currently in place, in case they prevent a sale.
Complete a Stock Transfer Form
You will need to complete a Stock Transfer Form with the details of the share transfer. This confirms who is buying, who is selling, and the amounts/values involved. Depending on how much money is changing hands for the shares, you might also need to pay stamp duty to HMRC.
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, luck (and yes, even pandemics!) 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.
Can I stay on as a director or shareholder?
This largely depends on the agreement you make with the new owner. Continuing to be a director after selling a company (or even keeping some shares) is fairly common practice. It’s often for a set period of time after the sale in order to make the handover smoother. It also reduces risk for the new owner by giving staff, suppliers and clients a sense of security and continuity.
Selling your assets
Instead of selling your company shares, you could just sell its assets. Such assets would include equipment, fixtures, furniture, accounts receivable, investments, inventory and goodwill. These may all be sold directly to the new owner. You may also be able to claim Business Asset Disposal Relief, to reduce the amount of tax you might have to pay as a result of selling assets.
You may sell the company’s assets as a going concern. This is where enough of the assets are sold for the company to continue in its current form. It then keeps its staff, suppliers and customers.
Make sure you appraise each of your assets individually – including goodwill (which is the value of your brand and how people perceive it) – so you know their value. This then shows you what your business is worth in total.
Most companies have liabilities, and they’ll generally be transferred to the new owner when the company’s sold. This may be loan or credit card debt, taxes, accounts payable, or even salaries if staff are staying on after the sale.
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!
Independent legal advice can help you to sell your business
It’s important to work out which option is better – to sell your limited company to the buyer or just the assets. But getting your head around these two concepts can be difficult, not to mention time-consuming.
Speaking to experts in this area will help you understand what you need to do in order to prepare your business for sale, as well as the sale and transfer process itself. It might also help you unearth some tax advantages you may not have previously been aware of.
Getting your buyer(s) credit checked
If you’re selling a car or games console, you’ll probably just hand it over to whoever comes along with the right amount of money. But selling your company isn’t so straightforward – you’ll need to credit check your buyer to make sure they can afford it.
As part of your due diligence commitments, you must be sure of where your buyer’s funds are coming from, and how the transfer of funds will work. Also decide how the legal documentation will be prepared to finalise the deal and complete the transaction.
Then there’s the payment itself
How will your buyer actually pay for your company? Will you ask for a deposit while the transfer is happening? Or will the money only be transferred in full on completion? This is for you and your buyer to agree in advance – in writing!
Telling Companies House about the sale of your company
When you sell your company or make any other significant changes to it, it’s essential that you tell Companies House and update the register.
Legally, companies must always have at least one director, 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. Once the new appointment’s made, you’ll need to submit an AP01 form to Companies House.
Use form TM01 to report your resignation as director, and file a confirmation statement to update the shareholder details and shareholdings at Companies House.
Don’t forget to update the company’s statutory registers of members, directors and details of ‘people with significant control’.
And what about HMRC?
Once your company is sold, you must complete a Company Tax Return to cover the accounting period up until the sale date. Corporation Tax will also be due if a profit was made during that time, as well as any profits accrued from the sale of business assets.
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 a part of your company can mean you have less control, depending on the type of shares that you sell, or the agreement that you have with the buyer. It’s best practice to draw up a formal shareholders’ agreement, to help avoid future complications or disputes.
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.
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About The Author
I'm an AAT and ACA qualified Chartered Accountant with over 13 years experience working with businesses, contractors and sole traders. I also love watching live music, and quizzes!
Learn more about Dean.