Understanding the Legal Aspects of Selling Your Business

Selling your business is one of the most important financial and personal decisions you will ever make. While securing the right buyer and negotiating the best price are critical, overlooking the legal aspects of the process can lead to unnecessary risks, delays, and even deal failure.

Working with experienced advisers will ensure that you protect your interests, reduce liabilities, and move towards completion with confidence.

The importance of legal preparation

Long before a deal is agreed, it pays to review your legal and compliance position. Buyers will carry out detailed due diligence, and if they uncover problems you were unaware of, it could reduce your business’s value or jeopardise the transaction. Key areas to review include:

• Company structure and shareholder agreements

• Employment contracts and staff policies

• Intellectual property ownership

• Customer and supplier contracts

• Compliance with regulatory requirements

Addressing issues early makes your business more attractive and avoids last-minute surprises.

Confidentiality and non-disclosure agreements (NDAs)

Before disclosing sensitive information to a potential buyer, a robust confidentiality agreement (NDA) should be in place. This protects trade secrets, financial data, and client information, ensuring that if a deal does not proceed, your business remains protected.

Heads of terms (HOTs)

Once a buyer is identified and serious negotiations begin, heads of terms (also called a letter of intent) set out the main commercial terms of the proposed transaction. While usually not legally binding, they help clarify expectations on:

• Purchase price and payment structure

• Assets and liabilities included in the sale

• Timeline to completion

• Exclusivity period for negotiations

Getting this stage right reduces misunderstandings later.

Due diligence

The buyer’s due diligence process is a comprehensive investigation into your business. It typically covers financial, legal, tax, and operational matters. From a legal perspective, this means providing:

• Statutory books and records

• Details of property leases or ownership

• Employment and supplier contracts

• Evidence of IP and brand ownership

• Insurance and litigation history

A well-prepared seller can speed up this process and strengthen their negotiating position.

The sale and purchase agreement (SPA)

The SPA is the legally binding contract that finalises the sale. It sets out the terms of the deal, including:

• Purchase price and payment terms

• Warranties and indemnities

• Transfer of shares or assets

• Restrictive covenants (e.g. non-compete clauses)

• Completion mechanics and post-sale obligations

This document requires expert drafting and negotiation. Buyers often request extensive warranties, and understanding their implications is essential to avoid future liability.

Warranties and indemnities

Warranties are statements of fact about your business. If they turn out to be untrue, the buyer may claim compensation. Indemnities, meanwhile, provide specific protection for the buyer against identified risks (e.g. ongoing litigation). Sellers must carefully manage these commitments and seek professional advice to ensure fairness.

Restrictive covenants

Buyers want reassurance that you won’t immediately set up a competing business. Restrictive covenants outline limits on your activities after completion. While common, they must be reasonable in duration and scope to be enforceable.

Why legal advice matters

Attempting to navigate a business sale without professional legal input is a serious risk. An experienced legal adviser ensures that:

• Your contracts are watertight

• You avoid unnecessary liabilities

• The process runs smoothly towards completion

Combined with an experienced broker, this expertise helps you achieve the best outcome when selling your business.

The legal aspects of selling a business are complex, but with the right preparation and advisers in place, they need not become a barrier. At EXITS.co.uk, we work with trusted legal and professional partners to guide owners through the process. By addressing these issues early and negotiating from a position of strength, you can maximise value, protect your legacy, and complete your exit with confidence.

Contact Us today to discuss your options.