Selling or closing a business

If you own a business and are considering selling it, it is important you go about it in the correct way. This article, written by our experienced, business team, details what to consider on the sale of a business.

Firstly, it is important to note that there are different processes for closing a business, depending on the type of business. Partnerships, limited companies, and sole trading businesses are the most common type of businesses and each require different methods for a successful closure.

1. Limited Companies – There are different processes for closing businesses; the process by which you would opt for depends on whether your company is ‘solvent’ or ‘insolvent’. If your company is solvent, then you can either apply to get the company struck off the Register of Companies or start a members voluntary liquidation. Striking off the company is usually the cheapest way of closing a business. If the company is insolvent then you must arrange liquidation of the company.
2. Partnerships – A partnership can be closed by agreement between the partners. A clause should be included in the partnership that requires less than a 100% vote to dissolve the partnership. If there isn’t a clause detailing this, then all partners must vote in favour to end the partnership. If the partnership is ‘at will’ then the partnership can be terminated by ‘notice’.
3. Sole trader – If you wish to stop being a sole trader, you should write to HMRC to inform them that you have stopped trading or have closed your business. You will also need to complete your Self-Assessment tax return for the tax year in which your self-employment ended.

If the business has employees, the employers must consider their responsibility to the employees when closing or selling the business. Employees rights are protected in law when a business closes or is transferred. All eligible employees are entitled to a statutory redundancy payment when they are made redundant. The employer must follow fair procedures including fair selection criteria, giving the employee at least 2 weeks’ notice and paying the redundancy payment on the date of dismissal. Where the company becomes legally insolvent, the Insolvency Payment Scheme pays certain outstanding entitlements to employees. This includes allowing the employee to claim for arrears of wages, sick pay and outstanding holiday pay.  If an employer is considering collective redundancies, the representatives of the employees must be provided with information regarding the proposed redundancies. Also, the employer must enter into consultations with the employee’s representatives with a view to agreement. When a business is sold or transferred, either by a legal merger or transfer, the employees are protected from unfair dismissal under the Transfer of Undertakings (Protection of Employment) Regulations 2006 and their employment can be transferred to the buyer.

The key things to consider when closing a business are:

• Set a date – At some point you will need to consider a date for when you will cease trading. Take into consideration any existing on-going commitments such as contractual obligations or your lease. Pick a suitable date that takes into consideration these commitments.
• Communicate your intentions – Consider who you will need to notify of the closure. This may include, your employees, suppliers, creditors, the bank and HMRC.
• Selling of assets – If you are set on closing your business, you could start selling the assets your business doesn’t need before closure. Then, upon closure, sell the remaining assets. If possible, attempt to find buyers before closure.
• Payment of debts – consider what you may need to pay before closure. This may include: final rent payments, utility bills, insurance or outstanding invoices.
• Cancellation of on-going agreements – This could include leases, insurance and software subscriptions.

We can help with the sale of a business by:

• Advising upon the commercial documents
• Negotiating terms of the sale
• Dealing with due-diligence enquiries and replies
• Tax considerations
• Ensuring compliance with any Partnership or Shareholder Agreement together with accounting to all necessary legal bodies

We can help you with the closing of your business by:

• Deciding which closure method is best suitable
• Being able to negotiate with creditors if there are outstanding arrangements and ensuring proper notice is given
• Provide advice in respect of the debts of the business

If you have any further questions on the sale of a business, or any other business law questions, please contact one of our experienced team today here.