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 involve retained amounts, specific earn-out clauses, or deferred consideration which will be paid when certain post-completion events occur or turnover targets are met.
Due diligence
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 use a range of options to set up secure data rooms which suit our client and the other party.
Warranties and indemnification
Where the sale is of a going concern, it is necessary for the seller to guarantee the business's finances and overall legal compliance. These safeguards protect buyers from future liabilities.
They are split into many forms of warranties which need to be reviewed and negotiated, including general warranties and tax warranties. The parties negotiate the financial limit and the time limit for the different types of warranties, which generally will not exceed an agreed term.
If there are known and identifiable issues which the seller wishes to put the buyer on notice of, they are set out in a document known as the 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.
Post-sale duties
After the business sale, both parties may have duties that affect the transaction. These include the payment of stamp duty on share transfers, filings with the Companies 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.
Financial records
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, 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, consents from the agencies should be obtained well in advance of the proposed sale (e.g. Enterprise Ireland investments).
Material contracts
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 registrations 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 are any existing or threatened legal disputes, full details need to be made available to the buyer and disclosed in the disclosure letter.
Employment and insurance matters
The company must follow employment laws and carry insurance. All employee contracts should be available and up to date. Accurate salary information and any industry-specific bonus or share-incentive schemes, employee schemes, and pension 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.
- 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 include them 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, instruct solicitors and accountants early.
