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What should I take into account before selling my company?

Business Law
What should I take into account before selling my company?

The planning process before selling a business is critical to the success and profitability of the operation. There is a series of business and legal provisions that will help to negotiate a better price in less time and to legally shield the transfer of the business. 

The complexity of a business sale makes it advisable to have a law firm specialized in legal advice to companies. Sometimes it will also be advisable to have expert economists. And, above all, in an ideal setting, preparations should begin within a reasonable period of time. Although this will depend on the type and size of the entity, we are probably talking about no less than a year.

Of course, there are situations in which the entrepreneur prefers to resort to an express sale. But this, although it will affect the profitability of the transmission, does not prevent us from taking the appropriate legal precautions.

Selling a company without complying with the legislation in force and legally covering one's back is dangerous. The employer risks sanctions or being sentenced to pay significant compensation and even to reverse the operation. Which can be very detrimental not only to your assets but even to the continuity and productivity of the company.

Business issues to consider before selling my business

Although in this article we want to focus on the legal issues to consider before selling a company, we cannot deny the relevance that business decisions will have on the operation. That is why we want to influence some key aspects.

For example, it is important to audit all the financial statements, the sales structure and, in general, the organization of the company. Generating objective and comprehensive reports will provide the entrepreneur and potential buyers with valuable information. Not only will it help you more accurately determine the price of the transmission, but it will also streamline the buying and selling process.

On many occasions it will be advisable to make operational and / or organizational adjustments. For example, separating the address from the ownership to facilitate the transition process. Or enhance the sales structure to generate a cash flow that allows the company to be valued upwards. 

The firm's business vision, objectives and milestones, and its corporate culture should also be clearly defined. These elements will facilitate negotiations, providing a clear idea of ​​the business you want to sell.

In summary, it is convenient to have a market study and an updated business plan to guide the purchase decision of the candidates, and these must be accompanied by a robust and realistic commercial and organizational structure. Of course, these are factors beyond the legal precautions and that will require a certain time. So, we do not elaborate further on the subject to be able to analyze this second question, where the advice of specialized firms in Corporate Law such as ours may be essential.

Legal issues to consider before selling my business

There are several fields that the entrepreneur must prepare before selling his business. In the first place there is the ordering of the assets, necessary to identify the sales unit. It is also important to review the corporate documentation and contracts in force. 

Then we must study the applicable taxation, both to the operation and to the current operations of the company. And the entrepreneur cannot forget the "ex lege" obligations that may affect him during and after the purchase and sale process.

Apart from these preparatory issues, the transmission process itself is delicate. Conditions of transparency and confidentiality must be guaranteed. The offer must be precise, clear and understandable. And a transition period is likely to be required.

Items prior to the sale of the company 

The cornerstone of the transfer of the business lies in the organization of the patrimonial structure. It is essential that the personal assets of the partners and the company are clearly differentiated. A matter that seems like a truism, but that causes not a few problems in the transmissions of sole proprietorships and family. 

For this, it may be useful to review the corporate documentation, which will have to be up to date if the seller wishes to expedite the operation. Let's not forget that the buyer will need to study the company's situation. So, offering objective, realistic, up-to-date, clear and transparent information will lead to less audit time.

Of course, this includes reviewing current contracts. It is possible that some of the contracts (such as employment contracts) can be transferred but not others (for example, if they have not been entered into in the name of the company). This implies that the consequences of leaving the company must be known and the buyer warned of all the obligations he subscribes to when acquiring it, as well as the consequences of non-compliance.

Finally, it is convenient to study the applicable tax regime. Not only the transmission (which will affect the profitability of the sale), but also the ownership and operation (as we must inform the buyer). It may even be advisable to enhance certain tax incentives that make the purchase more interesting.

Elements that affect the sales process itself

Once the company is prepared for its transmission, it must be especially cautious in the negotiation process. The buyer will need complete and accurate information about the company. Falsifying this information could lead to a defect in the consent that would invalidate the transmission, to a compensable injury and, in extreme cases, even to a crime of document falsification. 

However, society cannot "give away" your sensitive information. Therefore, the "due diligence" process aimed at auditing it must be protected by the appropriate confidentiality clauses.

It may be advisable to have external advice during this process. Both appraisers and independent auditors and, where appropriate, a sales team.

Of course, the concurrence of potential buyers will require additional caution. The same goes for the offer to buy. These include the constitution of guarantees, such as insurance, endorsements, signals, bonds ... Choosing the most appropriate instruments for each case will depend on the specific situation.

That is why it is advisable to have a team of lawyers before selling a company. Among them, it is convenient to have professionals specialized in the legal, tax and business sectors.

Contact us, and our lawyers specializing in business law will study your specific case. 

At Forcam Abogados we have offices in Barcelona, Madrid and Reus.