Selling a %'age of my business, need advice

Are you selling your business to another individual who will continue the business as a Partnership or are you selling your business to a company?

Thats the starting question for 10.

Others will follow depending on the answer

mattley23 said:

Hi all,

I currently own 2 companies and due to the success of one of them Im currently in the process of negotiating a majority sell off of my business due to myself not having enough time to run it correctly.

The business is established and has been trading for a number of years. Im a sole trader and own the business myself. I have no company solicitor and have not really needed one before.

Could anyone tell me what proceedures I need to go through when selling of a percentage of the business with myself being a sleeping partner. Is there any sort of agreement I can draft myself which is signed by both parties which states I still own a small part of the company before handing over control and majority owneership to my new buyer?

Thanks

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When you say 2 companies I am assuming they are both Ltd Companies (some people use the word company rather loosely). I also presume you are looking to sell some shares for one of them.

You state that you are planning to sell the majority of the shares. You also state that you wish to be a "sleeping partner". This does add to the confusion as to whether the "2 companies" are in fact bona fide companies and registered with Companies House. There is no such thing as a "sleeping partner" when buying shares in a Ltd Co - you are referred as a shareholder.

I also own 3 companies and I am rather baffled why a current major shareholder/business owner would sell the majority of shares just because he doesnt have time to run the company. I would sell some shares, but not majority, to a Managing Director who is accountable to you as CEO/Chairman. By selling majority shares you lose control of the company. If you remain a shareholder you are still at risk of losing the shares if the new major shareholder/Director does not run the company as well as you do/did.

Would it not be more beneficial for you to be Chairman and hold some shares? You do need to be formally advised of your options to ensure it is what you want. I would also strongly discourage you from attempting to draft your own agreement in the event you shoot yourself in the foot!

A solicitor will advise you and draft an agreement between both parties for about £400-500 depending on complexity. Believe me, it will be money well spent knowing your interests are protected.

Buy a WHSmith £3 agreement and you get £3 worth of rights! Take the transaction more seriously and instruct a solicitor. I can pin point to a few if you give me your location.

This is the second time today that I've heard of someone looking to close down/sell a profitable business because they don't have time to run it.

This person that you're thinking of selling to, can't you take him on as an employee to run the business. Obviously offer him a package that recognises his status in the business and possibly make the package performance related.

The advantage of a performance related salary is that if he doesn't perform he doesn't get paid. That should motivate him more than somebody who's guaranteed a salary regardless. Any salary that you do pay him is tax deductable thus reducing company profits and your tax bill.

If you have to sell him shares in the company sell him a minority interest or possibly introduce a different class of share with limited voting rights but full dividend rights. You can then chose to waive your dividend so diverting more to him.

As the previous poster said you need to treat this sort of thing seriously and seek professional help. Cutting costs now may well cost you dearly in the future.

Regards

Joy

But currently there are no shares to sell this is a sole trader business!!!

You could sell 90% of the business to him and remain as a partner taking 10% of the profits. To do this you would need

1) a sale document and
2) a partnership agreement

It would be advisable for both of these to be drawn up by a solicitor in conjunction with an accountant.

you could of course set up a limited company, transfer the business into the limited company and then sell 90% of your shares.

I havent considered the pro's and con's of which would be more beneficial from a tax point of view, that would be down to your accountant with the full details at hand.


You would in this instance need a shareholders agreement.
It would still be advisable to get a solicitor to draw up the agreement to sell the shares.

Alpha said:

But currently there are no shares to sell this is a sole trader business!!! You could sell 90% of the business to him and remain as a partner taking 10% of the profits. To do this you would need

1) a sale document and
2) a partnership agreement

It would be advisable for both of these to be drawn up by a solicitor in conjunction with an accountant.

you could of course set up a limited company, transfer the business into the limited company and then sell 90% of your shares.

You would in this instance need a shareholders agreement.
It would still be advisable to get a solicitor to draw up the agreement to sell the shares.

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I concur with Alpha now that it has been established that it is a sole-trading business that is in question. However, the original poster IS selling a 'share' of a business but not a share recognised under company legislation. I do however standby my original advice supplemented by Alpha's comments - set up a Ltd Co and sell shares to the person to be MD and retain say 40% shareholding, better than 10%!

Giving advice on a forum can become inaccurate sometimes because we do not have the full facts to hand and we do not really know the legal intentions of all parties, hence advising getting a solicitor on board.

If I was buying a sole-trading business I would require a sale document which will state what I am paying for. Have advised the original poster privately but just adding the comments for future readers.

mattley23 said:

Im selling the business due to having no time to run it and considering there is only me as an employee then the company will just sit dormant.

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I assumed from this we were talking about a limited company, apparently not. Regardless, have to agree with the above poster and advise sitting down with a solicitor and giving him/her the full facts. You get what you pay for so a free forum is not the best answer to your situation.

Regards

Joy