Several key terms are crucial when selling your Irish business. These terms cover everything from the sale price and payment terms to due diligence, seller guarantees, and post-sale duties.
Sale Price and Payment Terms
The buyer pays the seller the sale price to buy the business. Payment terms describe this transaction’s method and timeline. The terms agreed are set out in a document called a Share Purchase Agreement. The calculation of the sale price and how it is to be paid can vary and will often times involve retained amounts or specific earn out clauses or deferred consideration which will be paid when certain post completion events occur or turnover targets are met.
The buyer can check the business’s finances and legal standing to make sure there are no issues. The buyer will usually appoint their own Legal Advisors to carry out the due diligence and to review the documentation. It is commonplace to set up a secure online data room for the sharing of such documentation. At Blake & Kenny LLP we utilise different options to set up secure data rooms which are suitable for our client and the other party.
Warranty and indemnification
Where the sale is of a going concern it is necessary for the Seller to guarantees business finances and overall legal compliance These safeguards protect buyers from future liabilities. They are split into many forms of warranties which need to reviewed and negotiated, these consist of general warranties and tax warranties. The parties negotiate the financial limit and the time limit for the different types of warranties which generally will never exceed an agreed term. If there are known and identifiable issues which the seller wished to put the buyer on notice of then they are set out in a document known as disclosure letter. The disclosure letter sets out matters which are excluded from the warranties as the buyer is deemed to be on notice of those issues.
After the business sale, both parties may have duties that affect the transaction such as the payment of stamp duty on share transfers, filings with the Company Registration Office and the preparation of a set of Completion Accounts which reflect the financial position of the company as at the date of sale. There may be a balancing payment due to the seller or a refund due to the buyer.
Preparing Your Business for Sale
Title and ownership
Sellers must prove they own and can sell the business. Up to date company registers and share certificates must be available.
The company’s financial statements must be accurate and follow accounting standards. The most recent set of financial statements or audited accounts will be a critical piece of information. If the company has borrowings, then prepare copies of all letters of offer and any debenture or mortgage documentation.
Compliance with taxes
No liabilities or disputes should exist for the business’s tax compliance. Any issues should be disclosed to the other party and highlighted in the disclosure letter.
Legal Status and Litigation
Making sure the company meets legal, regulatory, and industry standards is crucial. If state grants were availed of then consents from the agencies should be obtained well in advance of the proposed sale e.g Enterprise Ireland investments.
Business operations depend on verifying essential contracts and their status. Equipment Leasing Arrangements and contracts should be made available for inspection.
Intellectual Property and GDPR
All necessary intellectual property must be owned or used by the business. Patents and domain name registration will need to be proven. A robust GDPR policy should be in place.
Legal and Environmental Issues
Avoiding legal issues and environmental hazards is crucial. If there is any existing or threatened legal disputes, then full details need to be made available to the buyer and disclosed in the disclosure letter.
Employment and Insurance Matter
The company must follow employment laws and carry insurance. All employee contracts should be available and up to date. Accurate salary and any industry specific bonus or share incentive employee schemes and pensions structures should be readily available for inspection.
Tips for a Smooth Sale
- Keep Accurate Financial Records: This simplifies showing buyers the business’s financial health and financial statements.
- Comply with laws: Follow tax, environmental, employment, and industry regulations.
- Licences and Permits: Update all operational licences, permits, and certifications.
- Contracts: Review and renegotiate important contracts to keep them in good standing.
- Intellectual Property and Insurance: Review and update intellectual property rights and insurance coverages regularly.
- Employee Relations: Comply with employment laws and resolve employee disputes.
- Thorough Preparation: Prepare for buyer due diligence by providing accurate and timely information.
- Transparency: Correct any issues early to avoid surprises during the sale. Identify matters to be disclosed at an early stage and which will be included in the Disclosure Letter, this will narrow the due diligence issues and save on costs.
- Professional Advice: To ensure all documents are ready for the sale, hire solicitors and accountants early.