Business Basics – Selling a Business or Shares in a Business

Being aware of your business’s value enables you to determine a fair selling price for some or all of your shares and negotiate efficiently with prospective buyers.  But where do you find a buyer for your shares, and what happens now?

Finding an investor or Buyer

Once you have determined a fair value for your shares, and decided how many of those shares you are looking to sell, you will need to find a buyer.  Buyers of equity in businesses come in all shapes and sizes, so which one is the right one for you?

Friends and family

It should be easier to convince someone who already knows you to invest in your idea, than a complete stranger.  This could include connections and business acquaintances, as well as friends or family.

This method is typically quicker, as you are likely to have much less rigorous processes than you would with a private investor.

It can lead to a complicated relationship in the future though, unless you clearly outline early on what your friends and family should expect in return for their investment.  Will they receive equity, and if so, how much.  What is the expectation on repayment, and timescales for repayment.

Any agreement should be put in writing, for the protection of all parties and for transparency.

Angel Investors

Wealthy individuals who invest their own money into fledgling businesses in exchange for equity.

To find angel investors in North Yorkshire, you could contact organisations like NorthInvest and Leeds Angels, which are focused on supporting and connecting angel investors with startups in the region and across the North of England. 

Look for opportunities to network with investors and entrepreneurs. Attend events such as pitch competitions and investor workshops to build connections and showcase your business.  

Often angel investors like to stay behind the scenes, keeping a close relationship with the founders, but leave you to the day to day running of the business.

Again, it is really important to understand expectations on both sides, to ensure a good fit.

Supply Chain

Investors can often be found in your supply chain.  Business owners in your industry, who are involved in what you do, may want to invest in your business, or buy it.

This can also include competitors, although this is more likely if you are looking to sell the whole of your shares in the business, rather than an equity share.  Competitors may be looking to merge their business with yours to create synergies and cost savings.

Business/Commercial Sales Agents or Business Brokers

Market and sell businesses on behalf of the company owner, acting as an independent intermediary between the company and potential buyers.

A Business Broker will advertise your business for sale and look for the best sale price possible, as, in the main, they charge as a percentage of the sale price agreed (although not always).

Ways of selling a business

Not all businesses are sold in the same way.  Some are sold as a number of shares, ranging from a few shares, to all of the shares in the business.  But many businesses are also sold as a number of assets.  The structure of the sale can have a big impact on sales price, timescales and also tax liability.

Share sale

If you sell some or all of the shares in your business, you are selling not only the goodwill value of those shares, but that percentage of whatever is on the balance sheet at the point of the sale.  The assets, and the liabilities.

If you are looking to bring in a new shareholder, there are two options:

1. A current shareholder sells some of their shares (transfer existing shares to a new shareholder)

If you sell some or all of your shares, then you will:

• Need to process a stock transfer form
• Update Companies House within 14 days of the change (share transfer and PSC changes)
• Pay stamp duty is the shares are worth more than £1,000 (0.5%)
• Pay Capital Gains Tax(CGT) on the gain in value if you are an individual (look at BADR – see below)
• If the shares are owned by a company, the gain in value is taxed under corporation tax rules

2. Issue new shares – diluting the value of all the original shares

As long as the current shareholders and the articles of the company allow it, you can create additional share stock to sell to the new shareholder.

The company would receive the funds for the new shares.

Business Asset Disposal Relief

Previously know as Entrepreneurs Relief.  A discounted rate of CGT on the sale of shares, as long as certain conditions are met.

The rate of CGT paid currently, when these conditions are met is 14%, but this will go up to 18% in April 2026.

To qualify for BADR when selling shares, you must:

• Hold at least 5% of a company’s ordinary shares and voting rights, plus be entitled at least a 5% distribution of profit/assets
• Be an employee or director of the company
• Meet the first two conditions for a continuous period of at least 2 years prior to disposal.

There is a lifetime limit per person of £1 million

Asset sale

If you are looking to sell your whole business, you may want to consider selling the assets of the business, rather than the shares in it.  Some buyers prefer this, as it is deemed lower risk, and they can just purchase the assets that they consider valuable, rather than the whole business.  Saleable assets include:

• Goodwill
  • Client relationships/orders etc
  • Company name
  • Website
• Trademarks, licenses or contracts
• Stock
• Knowledge (recipes/ways of working)
• Plant and Machinery
• People employed (TUPE)

For a buyer, an asset purchase is much less risky, as it avoids hidden and unforeseen liabilities.  Although the transfer of complex licenses, contracts and customer relationships need to be considered.

Unlike the CGT and potential BADR tax implications on an individual selling shares, this sale is made by the company, and the proceeds are treated as income and taxed under corporation tax rules.

The shareholders of the business in this company now need to consider how they extract the post tax profits from the business in the most tax effective way possible.

If a longer term strategy of extraction over a number of years, utilizing yearly allowances, or pensions etc is not palatable, then you can look to do a MVL (Members voluntary liquidation).  The distributions under an MVL are deemed as capital gains, not income, so you can again consider BADR.  There is a cost involved in the execution of a MVL, as it is a formal, legal process carried out by a licenses Insolvency Practitioner, but depending on the value of the available distributions, it is worth consideration.

Some business owners will sell the majority of the assets in their business, as part of a winding down strategy, rather than a winding up, strategy.  So, will continue to trade at a much lower level as well as extracting funds from the asset sale, over a number of years.

The Process of Selling a business

• Market your shares, business or business assets
• Appoint experienced advisors
  • Solicitors
  • Finance – Accountant or Tax advisor
• Protect confidentiality – Use NDSs before revealing sensitive information to potential buyers
• Produce a professional sales pack – also known as an Information Memorandum, including:
  • Business overview
  • Financials
  • Forecasts and growth potential
  • Operations
  • Team
• Heads of Terms or Letter of Intent – Non-binding agreement outlines key deal points
  • Purchase price and structure (asset v share sale)
  • Payment structure – upfront and deferred payments or earnouts
  • Retained liabilities and warranties
• Due Diligence – thorough documentation across areas like:
  • Financials
  • Legals
  • Operational matters
  • Historic liabilities
• Complete legal documentation – Formal legally binding contracts
  • Share Purchase Agreement or Asset Purchase Agreement
  • Disclosure letter, warranties, indemnities
  • Transfer of a going concern and VAT implications
  • TUPE
• Exchange contracts/completion – finalise the deal
• Completion Accounts – generally within 30 days of completion
  • Any final adjustments made to deal value

Timescales for all of this are upwards of 3-6 months, and this can be a tiring and frustrating period.