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The initial steps of selling a business: undertaking a due diligence exercise

Whether you have owned your business for generations, or for a short time, the decision to sell isn’t always easy. Once a decision is reached, your thoughts will turn to finding a buyer and dealing with the sale with the minimum amount of fuss and delay possible.

Whether you are selling the shares in your company or the business assets, the process can seem rather daunting. There are things you can do to help expedite the transaction and help it to run smoothly. The key is in the preparation.

One of the initial steps that any potential purchaser will undertake is a due diligence exercise. This will be tailored to your individual business, but early preparation will mean you have the information and documents ready when they are requested. If you identify any issues, you then have opportunity to take corrective action. You should consider putting in place a confidentiality agreement before you disclose any information.

The due diligence process is likely to be lengthy and detailed.

Though this is by no means an exhaustive list, questions will cover the following main areas:

1.  Business and corporate structure

Is there a shareholder/partnership agreement in place?

2.  Books and records

Are the company records and statutory books up to date and available? Is there an up to date asset register?

3.  Employees

Are there employment contracts? Can you produce an up to date schedule of employees detailing their start date, salary, holiday entitlement, benefits etc? Does the business have policies, procedures and a staff handbook? Do you hire agency workers or self-employed individuals? Do your employees require DBS checks?

4.  Litigation

Is there any ongoing litigation, complaints, disputes or proceedings with employees or customers? If so, you will need to provide full details

5.  Property

Is it freehold or leasehold? Who owns the property, the business or the owners?

6.  Supplier and customer contracts

Identify your key customers and suppliers. Obtain copies of the key contracts and ensure that they can be transferred to the buyer.

7.  Intellectual Property

Do you have a record of the intellectual property used by your business? Think about your business name, logo, website, trademarks, patents and brochures.

8.  Tax

Has the business dealt correctly with PAYE, VAT and Corporation tax? Is the business up to date with its payments to HMRC?

Author: Shelley Bonney

WSP Solicitors

DISCLAIMER: This article should not be regarded as constituting legal advice in relation to particular circumstances. This article is merely a general comment on the relevant topic. If specific advice is required in connection with any of the matters covered in this article, please speak to WSP Solicitors directly.

Published on 17th February 2016
(Last updated 28th March 2018)

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