Best way to sell business (limited company). Sell shares or sell assets?

[kelf]

Hi.

Thanks in advance for any advice.

I have found a buyer for my business I own jointly (50/50) with a member of my family. It is a small business in the form of a Limited Company and has no debts other than Director's loans that the company owes to the two shareholders and another family member. The offer we have for the business will probably not fully discharg all of the loans.

We are looking at either simply selling the shares (easier but not sure how the Directors loans would be dealt with).

The alternative is simply to sell the assets including the lease for the premises (the new owner is continuing to run the existing business).

Does anybody have any experience or knowledge of which would be the easier, quicker and least expensive (Legal fees?) way to get the transaction done?

As the sale is for a relatively modest amount we do not want to run up huge Legal fees.

Many thanks for your assistance.

 

[Paul Kelly ICHYB]

If you sell the assets, the company stays alive and is still your liability.

Sell the company and you pass everything over to the buyer.

 

[Clinton]

I did write an article for UKBF a long time ago, on this topic, but it doesn't seem to have my name to it any more, and someone else has been listed there as the author. I mentioned it to the new management, over a year ago, but it doesn't seem fixed.

Anyway, you can do better than that article. I'm the author of the UK's most complete guide to the Share Sale vs Asset Sale issue, here. There is a lot more to the topic than may first appear.

As the sale is for a relatively modest amount we do not want to run up huge Legal fees.

The most expensive way to do a deal is without a good lawyer on board!

 

[Clinton]

Oh, I found the article on UKBF, it's here (and, yeah, still credits someone else as the author - I've given up getting it fixed, I don't think UKBF gives a fcuk) but, like I said, the one on my site has more nuance and detail.

 

[Lisa Thomas]

Oh, I found the article on UKBF, it's here (and, yeah, still credits someone else as the author - I've given up getting it fixed, I don't think UKBF gives a fcuk) but, like I said, the one on my site has more nuance and detail.

maybe @Ozzy can help...

 

[Clinton]

Nah. Ozzy is aware. I mentioned it to him in a DM long ago. He said the attribution of the article to someone else wasn't intentional... and that it would be re-attributed to me. That was over a year ago.

It does look odd though because the article talks about a more in-depth article on "my site" and as Christopher Goodfellow is listed as the author, it looks like he's the owner of my business site.

 

[Ozzy]

Nah. Ozzy is aware. I mentioned it to him in a DM long ago. He said the attribution of the article to someone else wasn't intentional... and that it would be re-attributed to me. That was over a year ago.

Nah, that's not entirely true.
I asked if you could let me know what the article was so I could get it re-attributed to you. You explained you didn't have time, that you were leaving, and you wished me well. At least that's how I chose to remember your parting words.

 

[Clinton]

Nah, that's not entirely true.
I asked if you could let me know what the article was so I could get it re-attributed to you. You explained you didn't have time, that you were leaving, and you wished me well. At least that's how I chose to remember your parting words.

It's entirely true and I can post a screenshot of the conversation if you like

On 29-05-23, you'll find I said this in a DM conversation:

BTW, I don't know if you're aware, but past contributions I've made, before you took over, have removed credit to me.

I haven't checked others, but I did find this example some months ago: https://www.ukbusinessforums.co.uk/...e-which-is-better-and-why-should-i-care.6502/

Chris Goodfellow seems to be credited as the author (and that sits uneasily with the links that the author claims are to "his" site but which actually lead to MY site).

Anyway, happy long weekend.

I can post your reply as well if you wish

Yes, when I announced I was taking a break from UKBF, I couldn't be bothered flagging it for you yet again! I raised it with previous management a couple of times, raised it with you by DM and in a thread and on the phone. There just didn't seem to be any sense in just banging on about it again!

What you refer to about all the community writer stuff - I replied to that in my, characteristically frank, comments here (where, also, I mentioned the article and gave you a link).

But maybe it's my memory failing me again as you pointed out there

 

[kelf]

Many thanks for your input.

 

[Clinton]

No problem. Glad it helped and aplogies the thread got sidetracked (though it did serve one purpose and the article's authorship has finally been corrected thanks to you starting this thread)

 

[kelf]

Hope it helped.

Now just trying to work out how to extract the loan accounts for when we sell the shares!

 

[FriendsInvest]

Hope it helped.

Now just trying to work out how to extract the loan accounts for when we sell the shares!

Given your situation, a share sale is likely your best bet. It’s usually quicker, less costly in terms of legal fees, and avoids the complexities of transferring individual assets. Here’s how you can handle the director’s loans in a share sale:

1. Negotiate Loan Assumption: Arrange for the buyer to assume responsibility for the director’s loans as part of the sale terms. This can be written into the sale agreement, so the company remains responsible for repaying those loans after the sale.
2. Partial Payoff from Sale Proceeds: Use the sale proceeds to partially pay down the director’s loans. Any remaining balance would then be the responsibility of the company under the new ownership.
3. Agree on Loan Write-Offs: If the sale amount won’t cover the loans, you and the other shareholders could consider writing off the remainder, though this might have tax implications—an accountant can advise on the best approach here.

A share sale with one of these solutions for the loans will likely keep the process smooth and cost-effective. Good luck with the transition!

 

[eteb3]

Here’s how you can handle the director’s loans in a share sale:

1. Negotiate Loan Assumption: Arrange for the buyer to assume responsibility for the director’s loans as part of the sale terms. This can be written into the sale agreement, so the company remains responsible for repaying those loans after the sale.

This is saying two different things:
1. The buyer - that is the new holder of all the shares - assumes responsibility for the directors loans
2. The company -thanks to carefully drafted terms - remains responsible for the loans.

Which do you mean?

2 requires no contract terms: the company is today the debtor, and the company will remain the debtor because the company is not a party to the transaction: only the shareholders are changing (not even the shares are)

If you mean the new shareholders will guarantee the company’s debts to the current directors , that’s something else again.

 

[eteb3]

Reflecting, I suspect post #12 may be b0ll0x spewed out by AI - complete with US capitalis/zation and terminology.

 

[HFE Signs]

If possible you'd sell your shares and walk away with no liabilities and take advantage of the 10% tax relief. That would always be the preferred option for the seller, the buyer might prefer to buy assets and trade out of the business though.

 

[Mark T Jones]

Reflecting, I suspect post #12 may be b0ll0x spewed out by AI - complete with US capitalis/zation and terminology.

Yip - their posts definitely lack the human touch

 

[Clinton]

I'm replying again because you're a savvy person who spotted the AI garbage. I like that.

So let's try to explain some more.

The offer you've got doesn't cover the loans. So what's going to happen in an asset sale is that they buy all the assets, the cash goes into the business bank account and that, together with the cash already in the bank, can be drawn out by the directors as a DL repayment.

No tax on those withdrawals.

But you won't get all of your loan back and you'll have to write off that 'lost' money and liquidate the company.

If you sell the shares, the buyers will likely want a cash-free-debt-free deal. Otherwise they may be paying money to buy a business with a negative balance sheet and they'll have to pay further monies to you directors later. It's a much more difficult sale.

If they ask for a CFDF deal, you're going to have to write off those loans and all you'll get is the cash in the business bank account now (and, of course, the purchase price on which you might be eligible for BADR at 10%)

The former seems the cheaper option given there's no CGT on the 'purchase price' (even 10% tax is still tax). In that, I would respectfully disagree with @HFE Signs

I recommend not going by what the cost of the process is likely to be. Depending on the amounts involved, the 10% CGT saving on the asset sale could be far more than any difference in advisory cost between the two options.

There are more complicated options like the buyers loaning money to the business which is used to pay off (part of) your DL. That may present some advantages to the buyer, but in that, and in everything else in this post, I haven't thought it all through and this is not a carefully considered answer, I've just assembled some words together which may make even less sense than ChatGPT. You still need to get a professional opinion

 

[UK Contractor Accountant]

There are more complicated options like the buyers loaning money to the business which is used to pay off (part of) your DL. That may present some advantages to the buyer,

Had the same issue with one of my clients Ltd's - did as @Clinton mentioned above to mitigate tax liabilities. Did the bank transfers & resignations whilst both sat in my office and then handed over the signed stock tax transfer form & new share certificate and updated Statutory Registers/Companies House. £25 left in the bank account for new owners and parcel of land.

 

[eteb3]

There are more complicated options

Swap debt for non-voting equity? If redeemable prefs at a fairly high rate, buyer can repay at leisure, but incentivised to make that sooner rather than later.

 

[Clinton]

Swap debt for non-voting equity? If redeemable prefs at a fairly high rate, buyer can repay at leisure, but incentivised to make that sooner rather than later.

Not going to happen unless there are big sums involved.

 

[Clinton]

PS, some years ago, I wrote an article for Divestopedia where I discussed convertible bonds, if that's of any interest. But, there needs to be serious money involved for the buyer to even consider it, and to justify all the additional professional fees that they'd need to pay.