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 selling a company.
1. The first steps to selling a company
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.
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 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.
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.
- A guide to transferring and issuing company shares
- Appointing and removing a company director
- Save money and time with our dormant company accounts service
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.
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.
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 the company’s statutory registers of directors, members, and people with significant control are updated accordingly.
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 gain 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
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 we will get right back to you.
Join The Discussion
Comments (19)
If I buy a limited company and that company has land registered to it. Do I now own the land too?
Thank you for your enquiry, Daniel.
Generally speaking, where a company owns land and the ownership of that company changes, the actual owner of the land doesn’t change – it remains in the name of the company. Having said that, given you are the owner of the company (presumably, the sole owner), it’s likely you could now decide what to do with that land (like any other asset a company can hold).
We trust this information is of use to you.
Kind regards,
The 1st Formations Team
We are a Private Limited Company which has been trading successfully and profitably for just over 1 year. We have four Directors/ Shareholders in total. Unfortunately we do not feel that we can continue to trade due to personal differences and wish to either sell the company to a third party or split it between the two distinct areas – Projects and Service.
Please could you advise me on the best approaches to each scenario i.e. 1. Sell as a complete entity or 2. Split between two Directors (the other two Directors both wish to resign).
Thank you
Thank you for your kind enquiry, Emma.
Although we can’t provide advice on specific scenarios, here are a few things for you to consider in the first instance.
If you are looking for everyone to sell their shares together to a new shareholder, then a regular transfer of shares may be the best vehicle for undertaking this.
As regards your second scenario, wherein two of the director/shareholders wish to leave the company and remaining ones will take the company forward, this could be achieved by either of the following:
– A transfer of shares wherein the departing shareholders sell their shares to the remaining shareholders.You could carry out a “purchase of own shares” wherein the departing shareholders’ shares are bought back by the company and then immediately cancelled. In other words, the shares are sold to the company itself (provided it can fund it) and then said shares are cancelled (i.e. they cease to exist).
– A reduction of capital (supported by a solvency statement) which will cancel the shares of the departing shareholders’ shares (i.e. the shares will cease to exist).
Please note that the above list is not exhaustive. Which route you might choose will depend on the specifics of you and your company’s situation. Tax and legal considerations will need to be taken into account, so we would suggest you seek advice here.
Kind regards,
The 1st Formations Team
Hi,
Thank you for the article. It’s been helpful.
I sold my limited company and I’m on the verge of closing it with company house but I wanted to know if there is a special way to treat the money made from selling the company.
Do I have to create a special account in my books before finalising the accounts? For example, a disposal account?
I’m a little confused.
Thank you for your question, Precious.
We need a bit more information before we are able to explore your query.
Would it be correct in presuming that you owned a limited company through which you operated your business, and that the business itself was sold to a third party (e.g. another company), meaning your limited company is now dormant
and hence you are seeking to have it dissolved?
Ordinarily, if it is the company itself (and its business) that is being sold, the agreement and transfer of the company is between the seller of the company and the new owners, so would not normally impact the actual finances of the company in question.
We look forward to your response.
Regards,
The 1st Formations Team
Hi
My wife and I have talked about selling our limited company.
Then out of the blue two separate organisations have approached us to sell our company – one contact seemed unreal and I could not trace the caller or his organisation – it was always a telephone number and no address.
The second company have an address, email, website and company registration. they have asked for three years’ financial details which we have supplied but that is as far as we have gone. We understand they will look at the figures then get back to us with questions. Is this usual practice or something to be wary of?
Any thoughts as to the surprise approach please.
Thank you for kind enquiry, Hubert.
Did you provide the second company with a Non-Disclosure Agreement (NDA) to sign regarding the financial information you have provided? This would protect you from the other party using the data provided for commercial gain other than purchasing your company. It is relatively normal to be contacted regarding selling your business; however, on many occasions this is done by a third party such as an accountant, in the first instance, to improve credibility and to allow them to perform due diligence on the potential value of the company.
Regards,
The 1st Formations Team
Kind regards,
The 1st Formations Team
Hi,
I am planning to sell the goodwill, assets and stock of my business at the beginning of next year. Now the lease for my business premises is due for renewal at the end of this month. The contract is in my personal name and not in my business’ name. Will I have to change the contract to be in my company’s name or can it stay in my personal name to be able to sell? Many thanks in advance.
Thank you for your kind enquiry, Juliane.
With regards the contracted name of the lease – if the buyer plans to use the business premises cited as their business premises, you should change the contract to your business name. If the buyer does not plan to use the business premises, but instead, you do, you can keep it in your name – however, you may wish to consider transferring it to your business name if you can do so without having to provide a personal guarantee – as this would protect your personal assets in case the business could not pay the lease – as you would have limited liability if the lease was in the name of a limited company.
I trust this information if of use to you.
Regards,
John
I run two dance studios both under the same name as a ltd company as a sole director. Is it possible to sell only one location?
Hi Nic
Thank you for your kind enquiry. There is nothing stopping an agreement being drawn up which fully highlights what is and is not being sold, and which can be agreed by both parties. This agreement, if properly drawn up, would allow both parties to take the other party to court should the terms of the agreement not be satisfied. This includes the selling of one location of a company which has two locations within the same limited company. We would recommend you seek professional legal advice for the drawing up of such a contract.
I trust this information is of use to you.
Kind regards,
John
Kind re
I would like to sell my limited company and become a sole trader, so I only want to sell the company name (fictitious example – Builders Limited), not its business or goodwill. There are other companies with similar names (eg House Builders Limited) who might appreciate owning the shorter name. So how can I negotiate a good deal when there’s no potential business to sell, just the name? Is it worth trying at all?
Thank you for your question, David.
In general terms, it is possible to sell a company name via a contractual agreement. One method of doing this may be to sell all the assets and intellectual property in the existing company whose name you wish to sell, to another company owned by yourself, and then transfer the shares of the original company with the company name you wish to sell, to the purchasers. This method would guarantee that the company name you are selling could not be taken by another person outside your agreement. Please note: if you decide to change your original company name to another name, making the name you are selling available for the purchaser to change an existing company or form a new company using the name you are selling, this method would mean that for a certain amount of time, the company name you are selling would be available for anyone forming a company or changing a company name to use – this method would therefore not guarantee that the purchaser would obtain the company name you are selling.
With regards how you can negotiate a good deal when there’s no potential business to sell, we would recommend you seek professional business advice, as we do not have the specifics on this matter.
I trust the above answer is of use to you.
Kind regards,
John
Hi
I would like to sell my ltd company I have no time to pursue the business. I am on the preferred supplier list with Sky does this make the business worth anything ie for building work, interiors etc as it is very hard to get on their system.
I have been approached by a company interested in buying my limited company.
Two questions spring to mind.
1. Why would anyone be interested in buying a limited company? It’s not as if it’s a brand name.
2. How much is my company worth, other than what’s in the bank?
Hi Doug
Thank you for your comment.
There are many reasons why someone would want to buy a limited company, e.g. it makes a profit, it is an established business, it will provide a prospective owner with a role in the business and income, etc.
With regards how much your company is worth, we cannot provide this advice and I would recommend you seek professional guidance on this matter from an accountant, valuer or broker. In general terms, a company can be worth anything between 4 and 10 times its annual net profit, although this rough rule of thumb can vary greatly depending on the business sector.
Kind regards,
Graeme
Hi,
I’m selling my limited company for £44,000 and stock at £10,000.
Could you advise me the best way of selling the company as a going concern and what liabilities I might have
as regards Capital gains.
Hi Nigel,
Unfortunately, we are not able to advise on this. We recommend you speak to an accountant to find out more. If you do not have an accountant, you can send an email to [email protected] asking to be referred to an accountant, and we can arrange this for you.
Kind regards,
John Carpenter