AWB Charlesworth Solicitors has a dedicated team of corporate lawyers who are able to advise you and protect the interests of your company whatever your business objectives.
With a wealth of business experience we handle the full range of corporate and business law work. We have special expertise in dealing with business sales and acquisitions, management buy-outs, company reorganisations and advising on employment law implications.
Shareholder and joint venture documentation, share schemes, commercial contracts and agreements are handled by our team who are accustomed to working to tight deadlines to ensure transactions are completed punctually and within budget.
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Buying a Business- Employment Issues
Businesses for sale will accentuate their positives but prospective buyers need to be aware of the liabilities that could come along with buying a business in order to make an informed decision. Where employees transfer along with the business under TUPE, certain assurances may need to be sought before the purchase is complete.
Disputes or disciplinary and grievance matters
The business should keep a record of the employees who have had to be disciplined. They should also have a record of employees who have raised a grievance, what the grievance was and how it was handled. Confirmation should be sought from the seller that the company and ACAS procedures for disciplinary and grievance matters have been followed correctly. As a buyer, you should also ask the seller to disclose any future potential employment disputes and any ongoing or threatened legal proceedings.
Employee terms and conditions
Employees will transfer across to the buyer on the same contracts under which they were employed just before the completion of the purchase. Examine these terms and conditions and ensure that the seller does not amend these prior to purchase to give the employees more favourable terms.
As above employees will transfer on their current contracts- this means that you will need to review the contracts to see what protections you have under the terms should an employee chose to leave and work for a competitor. You will also need to review these to make sure that they will still be relevant and enforceable once the contracts have been transferred.
Employers often give employees further benefits such as private medical schemes and childcare vouchers. Before purchasing the business, enquire as to what benefits are offered to employees and on what terms. You will be required to put into place a similar scheme, if the current one does not transfer, and the costs of this need to be considered.
As you make your enquiries about purchasing the business, enquire as to pension provisions currently in place and if the business has already dealt with auto-enrolment. Where this hasn’t yet happened ascertain the auto enrolment staging date and whether, if the date is close, it needs to be extended. Where there is already a pension scheme in place employees will need to be offered suitable options with regards to their current pensions.
Prior to buying a business, suitable due diligence will need to be undertaken to prevent unknown liabilities from appearing once the business has been purchased, and warranties to allow you to claim back against the seller will need to be included in the purchase agreement to protect your interests.
Successfully Selling your Business
Selling a business can be a long and difficult process, however with the correct guidance you can sell your business in a way that can help it to grow and prosper in the future, whilst still receiving a fair price for the work you have put into it.
Achieving the best price
A business is worth exactly what someone is willing and able to pay for it. There are formulas and calculations that can be used to arrive at the initial proposed valuation but the only way to assess the true value of your business is to put it on the open market and see what offers come in. Even though at the outset there will be uncertainty as to the true value of the business, there needs to be a starting point, and accountants and business agents have for some years used a number of different methods to get the initial ball park figure. This usually takes the form of looking at the net profits of the business and adjusting them to remove any unusual or one off items and adding back any costs or expenses that should be included. Once this is done an appropriate multiplier dependent on the type of business and market conditions is applied to the adjusted profits.
Many advisers do still claim that valuing a business is an art as opposed to a science and two independent valuers could quite easily arrive at different valuations. Experience does play a major part in valuation as professional advisers may be able to draw upon similar situations that they have been involved with to ensure that a third party purchaser is shown a clear picture of any particular business that is being sold. The actual multiplier to apply will depend upon the business itself, the business sector and the economic climate. Again, experienced advisers may be able to draw upon their knowledge to arrive at the correct multiplier and an independent valuation will have more credibility with the potential purchaser.
Have a clear plan
Before you sell your business, know which aspects of the business you want to sell. Carefully consider what assets the business has and if there is anything that needs to be excluded from the sale. If the company is incorporated then it is necessary to decide whether to sell the business as a going concern (selling all of the assets but not the company), or sell the shares of the company (selling everything including the company). Careful consideration needs to be given to each option and aspect of the sale.
Get professional help
Selling a business can be complicated and during this time the business needs to continue to run successfully. With your attention focused mostly on the sale, the business may suffer- therefore it is necessary to get professional help allowing you more time to manage the business as normal. A lawyer will be needed to draw up or review documentation to negotiate the best deal for you, and a business broker can be a must in finding potential purchasers.
Get the business affairs in order
Make sure that during the sale the business is running as it normally would. Ensure that all records are up to date and try to pre-empt the things that the purchaser may request, such as ongoing contracts and details for the employees and make sure these are readily available.
Selling a business can sometimes be a long process, however after all the time you have spent growing the business it is worth spending time making sure that the sale is right for you. Don’t be afraid to turn down a purchaser if their expectations do not fit in with your own- you need to ensure that when you do sell it’s at the right time and for the right reasons.
Careful preparation and getting professional help are essential to ensuring that your business sells on your terms.
Management Buy-Outs (MBO)
A Management Buy-Out (MBO) is an existing team of managers working together in order to buy a company or part of a company which they work for. MBO’s are becoming a more frequent option for sellers due to the advantages that come with them but sellers need to also be aware of the disadvantages of this approach.
One of the main advantages to an MBO is that they buyers already understand the strengths and weaknesses of the business better than any other buyer and therefore these transactions can often be much quicker. Selling to the management of the business also allows the seller some peace of mind as they will be selling on to a group of people that they know and can trust with the continuation of the business. An MBO will give the managers a taste of running a company and will usually be their first opportunity to do so and this can greatly increase the commitment of the manager to the business.
Although MBO’s are becoming more frequent, it is often difficult for the management to raise the money that the seller is asking for the business- often this will mean that payment will have to be deferred or sellers will have to look to third parties to sell the company. Finance may also be sought from banks and other lenders who will seek certain guarantees and security for the amount that is leant to the managers which will add extra debt to the business.
There is a significant difference between being a manager of a company and owning it- some managers are better equipped for the change in position than others and the MBO team will need to make sure that everyone is aware of their roles and what skills they are bringing to the table in order to avoid future conflicts.
There are a range of advantages and disadvantages to MBOs as there are in any business sale. When looking to sell or buy a business, expert advice is crucial to ensure that the deal runs smoothly and the parties are happy with the terms of the deal. At AWB Charlesworth our experts have dealt with a range of MBOs for both smaller and larger businesses and would be happy to discuss the process with you and help you to work out if an MBO is right for you and your business.
A Shareholders Agreement can help to regulate the relationship between the business and the shareholders and helps to prevent confusion and disputes.
Day to day affairs
The board of directors manages the day to day running of a company but occasionally shareholders will feel that certain important decisions should be made at shareholder level. A Shareholders Agreement will allow shareholders to approve fundamental decisions.
Transferring and valuing shares
An agreement can detail the procedure for selling and transferring shares. Often the shareholders and the company will be offered first refusal of shares to be sold. This is useful for preventing competitors or persons outside of the company from acquiring shares and can allow family run companies to ensure shares remain within the family. A Shareholders Agreement can also detail how the shares should be valued should a shareholder wish to transfer or sell their shares.
Protection for minority shareholders
Ensuring that interests of the minority shareholders are protected is important. This can be achieved by providing within an agreement that fundamental decisions require the unanimous consent of all the shareholders ensuring that the balance of power is redressed and minority shareholders are not prejudiced.
Disagreements may occur between shareholders, even if at the outset this is difficult to foresee. A Shareholders Agreement can provide a structure to resolve these disputes without having ot resort to litigation which could save time and cost in the long run.
What happens if a shareholder ceases to work with the company or dies?
If a Shareholders Agreement is not in place it could mean that when an individual leaves the company they could retain their shares which may not be desirable, especially if they go to a competitor. A similar problem could arise if a shareholder dies, becomes mentally incapacitated or becomes bankrupt. A Shareholders Agreement could provide the company and/or other shareholders with an option to acquire such shares preventing the shares falling into the hands of an unknown third party.
Unlike other company documents, a Shareholders Agreement is a contractual document that remains private and confidential between the parties. Once in place the agreement can only be amended with the consent of all of the shareholders providing future protection for minority shareholders. A Shareholders Agreement provides security not only for the Shareholders but also for the company making it an essential document for any company with multiple shareholders.
Many small businesses are turning towards EMI ( Enterprise Management Incentive) Schemes as a way to incentivise key employees by granting options to allow them to acquire shares.
EMI Schemes give selected employees the right to buy company shares in the future at a fixed price through a share option. This can allow the company to retain more key employees by rewarding them for their hard work and dedication. As the shares are at a fixed price, employees could stand to make a significant capital gain when they choose to sell the shares.
Tailor-made agreements allow businesses to clarify which employees are eligible for the scheme, how many options they would like to grant and when these options can become shares. Businesses can also protect themselves by making it a condition of the scheme that when an employee leaves the company they automatically lose any options or shares they hold.
There are many tax benefits to the schemes, especially for the employee, such as the reduced rate of capital gains tax or lack of income tax and national insurance payable on the value of the shares or options. The company can deduct the cost and setting up of the scheme against corporation tax- this allows schemes to be set up cheaply.
Only certain companies can qualify for EMI Schemes- those businesses providing activities that have been excluded will be unable to participate. If the business does not qualify of EMI Schemes do not suit the business, there are plenty of other options available.
Company Share Buy-Backs
Share Buy-Backs are often used within family companies where a shareholder wishes to leave but the remaining shareholders would not want third parties to hold shares. A private company can buy back its own shares from one or more of its shareholders however it can only do so in prescribed circumstances.
When purchasing is own shares the company must comply fully with the requirements of the Companies Act 2006. Our specialist Commercial lawyers, experienced in the area of buy back, could ensure that these requirements are fulfilled.
Funding the share buy back
The company and the shareholder selling the shares will need to agree a price for the shares and the company will need to have distributable reserves to fund the share buy back. Most private companies are prohibited from funding a share buy back with borrowed money however the company can raise money by issuing new shares.
Before the shares are bought by the company the articles of association will need to be reviewed to ensure that they do not prohibit they buy back of shares. The consent of company shareholders will also be needed before a buy back can take place.
A purchase of own share agreement will need to be put into place to set out the terms of the agreement and once signed off stamp duty will need to be paid. The shares will then be cancelled.
Prior to buying back shares all options will need to be reviewed to decide the best course of action for the business.