There are several good reasons to sell your business or limited company in Ireland, including retirement, making money, or simply wanting to exit the business.
You can sell your assets to a third-party buyer or to another business, or alternatively if you own a limited company you might consider transferring your shares.
If there is more than one shareholder in your company, you will have to work with your fellow shareholders in order to get the business sold. Sometimes, not all of the shareholders agree, so it is important that you have a good shareholders agreement that covers every eventuality.
If you are considering selling your business, make sure you check the company’s Constitution and any shareholders’ agreement in advance, as they frequently include provisions for buying and selling shares in your company.
When selling any type of company, you must consider your shares, assets, liabilities, taxes, professional assistance, and the buyer.
You should also consider how you are going to get the business ready for sale and how long the sales process might take.
Getting your business ready for sale
There are a few things to be aware of before you sell your business in Ireland. Lets have a look at the things you need to consider when you are selling a limited company.
If you are selling your company, you typically need the approval of all of the shareholders. Of course, a limited company owns its own assets and liabilities. When shares in a limited company are sold, the business’s assets and responsibilities are transferred to the buyer as well.
Pre-emption and the rights of existing shareholders
Pre-emption rights allow existing shareholders to buy shares before they become available to a third party buyer, either as part of a new share offering by the company or through a stock transfer by an existing shareholder.
The shareholders’ pre-emption rights are set out in the company’s shareholders agreement and/or Constitution, so it is important to double-check that you are not in violation of these rules when you try to sell a business in Ireland.
Capital gains tax
You may make a ‘capital gain’ when selling your business in Ireland (for example, the uplift or profit you get from the sale).
Capital gains tax is a charge on the profits earned when you sell (or ‘dispose of’) an asset that has appreciated in value. It is not the consideration you receive that is taxed; it’s the uplift in value.
If you end up with a Capital Gains Tax liability, you may be able to claim other tax relief benefits such as Entrepreneurs’ Relief or Retirement Relief.
Selling your assets
Did you know, you can also sell the assets of a limited company instead of selling its shares?
Your company’s assets, such as equipment, furniture, fixtures, account receivables, inventory, goodwill, and cash could be transferred to a new owner.
The company’s assets may be sold as a going concern. This is when you sell enough of the company’s assets to keep it operating as usual. Customers, suppliers, and staff are all retained by the business.
You will want to get advice in valuing your business and ensuring that th businesses goodwill and entire assets are taken into consideration.
Selling only part of your business
It is critical to keep your staff informed if you are selling part of your company. For example, you may be selling a certain department or function.
You must of course inform any staff member who is affected by the sale of a portion of your business about the changes, including:
- when and why the business is being sold?
- and, if applicable, provide then with information on redundancies or relocation benefits; and
- that in the event that the sale constitutes a transfer of an undertaking as defined in the European Communities (Protection of Employees on Transfer of Undertakings) Regulations 2003 that the staff members affected are informed of their rights.
A sale of a business can be time consuming and complicated, putting extra demands on the management team, which might affect underlying business operations. So you need to plan ahead and ensure that you are well organised.
If you are a sole trader, the process is slightly more straight-forward.
Liabilities are likely to include accounts payable, salaries, taxes, and loans due and owing by the company.
In a sale of a limited company, the company’s liabilities are generally transferred with it to the new owner.
Before acquiring a business, a buyer will want to examine in detail of the Company’s liabilities and do legal, financial and commercial due diligence.
Companies Registration Office
Don’t forget to update the Companies Registration Office with the company’s statutory registers of members, directors, beneficial owners and “people with significant control”.
You should also submit a final Corporation Tax return before the business is transferred.
If a profit was made during that time, or any profits accrued from the sale of business assets, Corporation Tax may be due. If your business is VAT-registered, the VAT registration may be transferred to the new owner.
Independent legal advice can help you to sell your business
You will need to take professional tax and financial advice in order to evaluate whether selling the entirety of a company or just selling the business assets to a buyer is preferable.
Understanding the different sale options when getting your business ready to sell is time-consuming and there are a number of potential risks. You might want to protect your confidential business information and ensure that any potential buyer enters into a non-disclosure agreement. It is also costly to prepare an information memorandum (“IM”) or prospectus in relation to the sale of your business. An IM would include the key financial and commercial information in relation to your business which would induce potential buyers to make a bit for your business.
Our commercial lawyers can assist you with preparing for a sale, selling your business and achieving that in the most tax efficient manner possible.
Your buyers’ credit check
Do not forget to double-check the credit of your purchasers. It is vital that you are sure that the Buyer has sufficient funds to acquire your business. Look for guarantees from a parent company or individuals where the Buyer is a shelf company.
It is also key, in order to comply with anti-money laundering legislation, that you do due diligence in relation to the source of funds from the.
Sometimes just because a Buyer offers the highest price, it might not necessarily mean that they are the right buyers for your business. You must take into consideration the Buyer’s reputation in the market and the manner in which they are prepared to do the deal.
Of course there is considerable legal paperwork that will have to be prepared and finalised in order for the deal to conclude. In many instances you will have to enter into non-disclosure agreements, share purchase agreements, tax indemnities, employment contracts and ancillary documentation.
You’ll also need to decide on how the money will be paid. Sometimes there is delayed consideration and earn out options.
Will you require a deposit in order for the Buyer to secure exclusivity?
Protecting you and the business
A non-disclosure agreement may help you and the business you are selling protect its most valuable asset which is business information.
An NDA can help to prevent future use of confidential information in instances where the sale of a business breaks down or alternatively during the process of the acquisition.
When you are selling a business, sensitive data is something that may put your company at risk; using a non-disclosure agreement offers several significant benefits, even when you believe the other party will maintain secrecy:
- If your buyer is a competitor, they may take the knowledge you provide during sales negotiations to use it to their own advantage and improve their own company if they decide not to go any further.
- If discussions come to a halt later on and you want to terminate the agreement, you can be confident that the other party will suffer the consequences of legal action should they use your confidential information.
- If they use your confidential information for commercial gain, or in a way that is not specifically outlined in your NDA, you may be able to take protective legal action against them.
Who buys the business?
Finding a buyer can be one of the most time-consuming phases of the sales process, but it is the most critical element to a successful transaction.
Buyers can be divided into three categories: existing management team, strategic buyers, and financial buyers, each with its own set of characteristics.
Different types of buyers will also come up with different types of business valuation.
How to value my business
Owners of listed public limited company shares may find it easier to obtain a ready-made market price for their shares, but those wanting to value a private company must be more innovative and demonstrate the value. The most popular methods of valuing a company are the times revenue method, the earning multiplier method, the discounted cash-flow method, the book value and the liquidation value.
How long does it take to sell a business in Ireland?
If your business is “market-ready” it should be much easier to negotiate with interested parties. You really need to present an Information Memorandum or Prospectus to a potential Buyer.
The amount of time it takes to sell a business is sometimes determined by luck and how eager the buyer is.
The answer also depends on how well you prepare your business for sale and how patient you are when searching for buyers.
Your business revenue, assets, location, and cash flow play important roles in the process.
Can I sell a part of my limited company in Ireland?
Selling part of your limited company means you share the responsibility of the company moving forward with a new buyer.
If you intend selling part of your company, you should make sure you have a shareholders agreement in place so that everyone is clear about their roles and responsibilities.