How to sell shares in a limited company
Selling a company as a sole shareholder and director
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Do you have a company that’s doing well… and every now and then you’re thinking to
yourself… should I sell my business? Should I be thinking
about selling my business? And, if I did, what would
the process even be? Well, in this video, we’re going to tell
you some of the key considerations that you should be
factoring in. We’ll also look at some of the practical elements of how the process
would actually be undertaken.
So, if you own a company, and you’re thinking of selling it – STOP. Don’t do anything
until you watch this.
Hi there, Nicholas Campion here from 1st Formations with another edition of Whiteboard
Thursday. If you are the sole shareholder and director
of a private limited company, you can sell the business
and all of its assets at any time, if you no longer want to own and manage it. There
are, however, a number of important factors and responsibilities
to take into consideration before you sell your
business. First of all, let’s take a look at some
initial considerations. Most people will only sell a business once
or twice in their lifetime – so it is really not something to
rush into without fully understanding the process, and whether this is the right time
to get the best return for your hard work.
Now, to ensure your business appeals to prospective buyers, you should be able to demonstrate
a consistently strong financial performance
over the past two or three years, at the very least. You should also consider other factors, such
as: the value and current profitability of your company
and its assets; the brand, image and reputation of your business; your client relations and
retention rates; sales history and future earnings forecasts;
and potential risks for the buyer due to a change in
management. It may also be worthwhile getting your accountant
or a specialist to value your business before making a commitment to sell, as this will
reduce uncertainty and help set your expectations at a
realistic level. Number 2 - The process of selling your company
shares. If a company has other investors, that is
shareholders, you cannot simply sell it without their
approval. However, you can remove yourself from the company by selling your own shares
and resigning as a director.
If, on the other hand, you are the sole director and shareholder, you will not have to consult
with anyone else before making the decision to
sell some or all of your shares, but you must take a look
at the current market and economic conditions to determine whether it is the right time
to sell. You should also think about the potential
Capital Gains Tax you may have to pay from the profit of
the sale. To sell your shares, you will need to complete
a Stock Transfer Form with the details of the transfer
of shares.
If a company has other directors and shareholders, they will need to approve the transaction
as well, to waive their pre-emption rights (if applicable);
however, as you’re the only director and shareholder, you alone can approve the transfer
of shares to the new owner. Depending on how much money is changing hands for the shares
- stamp duty may be payable to HMRC, who would then also need to stamp or approve the Stock
Transfer Form. You may find that a new owner wants you to
remain as a director or shareholder for a period of time
following completion of the sale. This is becoming increasingly common, because it allows
the new management to learn more about the business
during a handover period. It also provides clients and suppliers with
a sense of security and continuity, thus reducing any
potential risk for the new owner. Number 3 - Satisfying due diligence checks.
Serious potential buyers will appoint solicitors and accountants to carry out due diligence
checks on your company before completing the sale. This
is to ensure that your business is sound and presents
minimal risk to the buyer. They will use this information to make an informed decision.
They may modify the terms of the sale according to the information that is gathered. You will
be expected to show profit and loss accounts,
company tax returns, lease agreements, details of any
outstanding loans and liabilities, and any payments or credits due from suppliers and
clients. To satisfy these due diligence checks, your
accounting records must be up-to-date and present a true
and fair view of your company’s financial position.
Your annual accounts and tax returns should also be in order. You must finalise, or be
in the process of settling, all outstanding liabilities with
HMRC, creditors, suppliers, and employees. You should also
be able to account for all credits or liabilities associated with existing clients.
Number 4 - Keeping things on a need-to-know basis.
It’s best not to inform your staff, suppliers, and competitors that you are planning to sell
your company, until everything is in order. Their
reactions could negatively impact your company’s profitability.
When the time is right, you should notify your employees about why and when the business
is being sold, and whether they are receiving a redundancy
package or being kept on by the new owner after
the company is sold. It is also recommended that you not give too
much information to potential buyers before carrying
out detailed checks and putting non-disclosure agreements in place.
Number 5 - Notifying Companies House when you sell your company.
You should notify Companies House about the sale of your business by updating the registered
details of your company. To do this, you will need to: First, appoint a new director. This
must be done before you resign, because private companies are legally required to always have
at least one appointed director. Once the appointment has been completed, you’ll need
to submit an AP01 form to Companies House. Next, you’ll need to report your resignation
as a director on form TM01. Finally, update the shareholder details and
shareholdings by filing a confirmation statement.
This information will be updated on the Companies House public register, and you must also make
sure that the company’s statutory registers of directors, members, and people with significant
control are updated accordingly.
And finally, number 6 - Satisfying the requirements of HMRC.
If your company is registered for VAT, you can transfer the VAT registration to
the new owner. When the business has been sold, you will
need to complete a Company Tax Return to cover the
accounting period up to the date of the sale. You will also need to pay Corporation Tax
on profits made during that time, including chargeable
gains from the sale of business assets. A Self Assessment tax return should be filed
by the appropriate deadline to report your personal
income and tax liability. HMRC requirements can be a complex affair
when selling a business, so we would advise appointing
an accountant to assist with this process, to ensure that everything is carried out properly.
And there you have it. In this video, we’ve discussed selling a company as a sole shareholder
and director, from the important first steps and
considerations, through to satisfying the statutory
requirements of Companies House and HMRC. We strongly recommend that you consult an
independent, specialist business advisor for professional advice and guidance, before taking
any steps or making a firm decision to sell your
company. If you have any questions, please leave them
in the comments section below, and in the meantime
be sure to subscribe to our channel to get more advice on limited companies, reporting
requirements, and tax obligations. We are always happy to hear from you, and
we cannot wait to help. Until next time, cheerio