Selling a limited company can be one of the most pivotal moments in your professional journey. You might be stepping away to retire, transitioning to new opportunities, or capitalising on a great market. Whatever your reasons for selling, it calls for careful planning, familiarity with potential deal structures, and well-managed negotiations. In the following guide, we’ll walk you through each step of how to sell a company so you know what to expect.
Preparing Your Company for Sale
Valuing Your Business
One of the first challenges is determining a realistic asking price. There are a number of different methods commonly used to value a business, including asset-based, earnings-based, and market-based valuations. Which one is best for you will depend on your unique circumstances. We cover the key methods of business valuation and their relative strengths and drawbacks here: How to Value a Business for Sale or Investment.
You might consult a corporate finance adviser or accountant for an objective view. If you overprice your business, serious buyers may walk away; if you underprice, you risk leaving money on the table. A well-founded valuation sets the tone for productive negotiations.
Internal (Seller) Due Diligence
Before letting interested buyers scrutinise your company, it pays to conduct your own internal review. Start by confirming your financials: are your statements up to date, and have all tax filings been submitted promptly? Next, examine key contracts, such as supplier agreements, customer deals, or licensing arrangements, ensuring they’re valid, documented, and not close to expiration. Check your corporate documents, like articles of association and shareholder agreements, to confirm no special conditions might complicate a sale. Also, review employee arrangements—are contracts in place for each staff member, and is any relevant pension scheme clearly documented? A well-organised “data room,” either online or physical, gives buyers confidence and can speed up the deal by reducing potential concerns.
Choosing the Right Sale Structure
Asset sale v. Share sale
The two main routes to market are share sales or asset sales.
In an asset sale, the buyer acquires specific assets (like equipment, inventory, or customer lists), while you retain the limited company entity. This can be complex in terms of transferring contracts or assets one by one, but buyers may prefer to effectively “cherry-pick” what they want, and avoid liabilities attached to anything they don’t.
By contrast, a share sale sees the buyer purchase all the company’s shares, effectively stepping into your shoes as the owner. This can be simpler if your goal is to hand over the company in its entirety, along with existing contracts and brand identity. Many sellers favour a share sale for potential tax advantages, but buyers often demand added warranties or indemnities to safeguard against taking on all liabilities (which we explore further below).
Locating Potential Buyers
Finding the right buyer can be tricky. A competitor or other operator in your industry may have already expressed an interest to you. Alternatively, you may want to engage a business broker or corporate finance adviser to market your business to potential acquirers. Some sellers also consider seller finance, allowing the buyer to pay part of the price over time. This can attract more buyers but comes with a credit risk if they fail to make the instalments.
Putting the Deal Together
Non-Disclosure Agreements (NDAs)
Before sharing detailed financial or sensitive commercial information, you’ll want the buyer to sign an NDA. This legally binds them to keep your confidential data private if the deal falls through. It’s a standard protective measure that can cover client lists, product details, or other trade secrets.
Heads of Terms (HoTs)
Once you reach broad agreement on points like purchase price, payment schedules, and sale structure, you can record these in Heads of Terms. Although not generally legally binding, HoTs can help reduce misunderstandings and facilitate smoother negotiations later.
Buyer Due Diligence: What to Expect
The buyer’s due diligence often involves reviewing your financial records, key contracts, intellectual property, and employee arrangements. If concerns arise (such as major customer contracts nearing expiry or unresolved legal disputes) they may renegotiate the price or request stronger indemnities. If you’ve already conducted your own internal checks, you should be well prepared for this phase, which can expedite the process and maintain the buyer’s confidence.
Earn-Outs and Deferred Payments
Some deals feature earn-outs, where part of the purchase price depends on hitting targets after the sale. Alternatively, deferred payments let the buyer spread out the cost over time. These structures might raise the total price, but they also keep you tied to the company’s future performance—or risk the buyer not meeting later instalments if the business struggles. It’s important to get expert legal advice if you are thinking of structuring your deal in this way.
Drafting Sale Agreements
Share Purchase or Asset Purchase Agreements
Depending on the chosen structure, you’ll either sign a Share Purchase Agreement (SPA) for a share sale or an Asset Purchase Agreement (APA) for an asset sale. These documents detail the purchase price, any deferred or earn-out arrangements, warranties, and indemnities, as well as conditions (like obtaining landlord consent for the property lease) that must be satisfied before completion. Both the SPA and APA are lengthy, complex agreements that must be clearly drafted with the help of a commercial solicitor to avoid ambiguity and protect your interests in the deal.
Liabilities, Warranties, and Indemnities
These are key components of the sale agreement that buyers will insist on for their protection and which your legal advisor will negotiate on your behalf:
Warranties: these are effectively contractual statements or representations made by the seller about the company’s state and condition, including finances, legal compliance, employee relations, and so on. If any warranty is inaccurate, the buyer could claim damages later.
Indemnities: these are different from warranties in that they are promises made by you as the seller to cover the buyer against specific risks and liabilities that may arise after the sale. Examples include tax liabilities and pending litigation. It is common for sellers to seek to limit their liability to avoid indefinite exposure through caps or time periods for claims.
Restrictive Covenants
Buyers typically request restrictive covenants from sellers to ensure their newly acquired business is not undermined. This includes clauses preventing you from immediately launching a competing business, approaching your former customers, or soliciting key staff for a set period. Restrictive covenants should be reasonable in duration and geographic scope. If they’re too broad, they may not be enforceable.
Transferring Employees Under TUPE (Transfer of Undertakings (Protection of Employment) Regulations)
TUPE ensures that employees’ existing terms and conditions of employment are preserved when a business or part of a business transfers to a new employer. In a share sale, although the ownership of the company changes, the employees remain employed with the same legal entity / employer. TUPE generally doesn’t apply to share sales as there is no real transfer of the business – just a change in owners of the legal entity housing the same business.
In an asset sale, however, if the buyer acquires a business or part of the business that retains its identity and continues to operate – TUPE is likely to apply. This means moving employees to the buyer under the same terms and conditions. Both you as the outgoing employer and the purchaser as the incoming employer are legally obliged to inform and consult with affected employees about the transfer and any changes.
Handling Lease Assignments
In a share sale, the lease will continue to be held by the same company post-sale. As such, a taking steps to assign the lease is not generally required, but you may need consent for change of control. For an asset sale, if the leased premises is part of the assets being purchased / transferred – then you are likely to need the landlord’s approval to assign that lease to the buyer. A landlord may also require that you guarantee the obligations of the buyer under the lease. JPP Law doesn’t handle lease assignments directly but can work with partner firms that do.
Actions After Completion
Transferring Ownership and Updating Records
In a share sale, stock transfer forms are used to transfer shares to the buyer. The companies register of members (shareholder list) must be updated and Companies House will also need to be notified of the change. For any assets changing hands, relevant bodies should be notified and updated like the Land Registry for property transfers and the Intellectual Property Office for any trademarks etc.
Considering Capital Gains Tax (CGT)
Selling your company—whether through shares or assets—can trigger tax implications. CGT is generally payable on the increase in value between acquiring the shares and their sale value. Limited companies need to pay corporation tax on any profit made on the sale of assets. Certain reliefs, such as Business Asset Disposal Relief (previously Entrepreneurs’ Relief), may be available to reduce the tax owed if you meet the criteria.
Tax is a complex area and It’s best to consult a specialist early in the sale process to understand your liabilities.
Ready to Sell Your Company?
At JPP Law, we’re a modern, virtual B2B law firm that supports business owners at each stage of this journey. We advise on heads of terms, draft and negotiate share or asset purchase agreements, and coordinate with specialists (for areas like lease assignments or tax planning). If you’re ready to begin the sales process—or need more information about how to sell a company —feel free to book a introductory call (free) with a member of a commercial law team. We’re here to guide you toward a successful sale.
