Liverpool Solicitors

Business  Sales and Purchases

Key legal points for a seller to consider

• ensure you don’t release commercial or technical information without a good confidentiality agreement in place first;

• prepare well – compile all business information and records (especially employment and insurance records), accounts and contracts well in advance of any sale

• take advice from solicitors and possibly accountant on the most tax efficient structure for selling;

• be prepared for enquiries the buyers are likely to raise. this saves time and possibly legal expense.

• Obtain any necessary consents if you are not selling the entire shares in a company or are not a limited company. Consents might include Landlord’s consent for any lease transfer as a start.

• Anticipate that a buyer may well push for warranties, indemnities, guarantees or retentions. Discuss your position on this with your solicitor at an early stage, try to see things from the buyer’s viewpoint and look to find creative solutions which do not tie you into ongoing possible liabilities or at least minimise this.

• Don’t rely on verbal promises from a buyer that they have funds in place,insist that proof is provided at an early stage.

What steps should directors take to reduce risks of personal liability ?

• Keep accurate and up-to-date financial records, minutes of meetings both formal and informal.
• use common sense as regards decisions about whether the company is financially stable.
• Have a clear  business plan and financial strategy for the company.
• Do not continue to trade if your company is insolvent, this could give rise to personal liabilities.
• If you suspect the company may be insolvent, obtain professional advice as soon as possible.
• If other directors do not agree with you, call a board meeting and state your view clearly and ensure this is fully documented. Resigning from the board is unlikely to safeguard your position. Take immediate professional advice.
• Do not borrow if  there is little chance the company will be able to repay it.
• Do not take deposits for orders you know the company cannot fulfill.
• Be very careful to avoid paying certain creditors in preference to others.

How can a shareholders’ dispute be avoided ?

Start by having a comprehensive shareholders agreement right from the start of the company. This is the best form of protection available and also makes good business sense. The most important things such an agreement ought to include are :-

• how the company will be financed
• policies on payment of dividends,  whether directors will receive fees and whether shareholder will be employees.
• who is responsible for day to day involvement in the running of the company
• setting out what the business hopes to achieve and a plan for how to get there
• controls and rights for issue such as bank mandates, policy on borrowing or incurring costs
• succession issues – what happens if a shareholder dies, wants to sell his, her or their shares or wants to retire from any agreed active involvement.

What ought to be agreed with a joint venture partner ?

As a useful starting point :-

• consider and agree what the structure should be
• consider the joint venture objectives
• who will be the management and other control issues
• how will the JV be financed, remember to think some way down the line on this also as regards ongoing working capital needs
• what assets, if any, will each party  contribute ?
• who will work for the new venture
• how  will any profits be distributed or retained
• ownership of intellectual property created by the joint venture
• dispute resolution, mediation or arbitration
• exit route

Can shareholders sell or transfer shares to anyone they choose ?

• A company’s articles of association will typically allow the directors to refuse to register any transfer of  shares.
• the articles commonly require any shareholder who wants to sell shares to offer them to existing shareholders first, which is known as preemption, or to offer them back to the company through a share buy-back. The articles will also commonly include a clear mechanism for valuing shares offered in this way and a clear timetable and procedure.
• The articles may also provide with a small family type company that shares can be transferred freely between members of the same family, but any other transfers are subject to the usual directors’ powers to refuse to register a transfer.
• There may be specific provision on what happens in the death of shareholder also.