Key areas of due diligence to focus on when preparing your company for sale

Selling your business is not easy. However, if pre-transaction due diligence is properly conducted, not only does it make the sale process smoother, it can also prevent the deal from falling through at a later stage.

If selling your business is something you’re thinking of doing, prepare for due diligence in advance of formal negotiations, prior to the heads of terms being agreed. If it reveals major issues, they can be resolved before the start of the sale.

What is due diligence?

Your buyer will want to know as much as possible about your business before signing the sale and purchase agreement and committing to the transaction. Due diligence is an extensive investigation into a
company’s affairs, where a buyer conducts a legal, financial and commercial investigation in preparation for a possible sale.

Therefore before formal due diligence begins, you should consider the following key areas and be aware of the nature and extent of your company’s obligations, liabilities, assets and risks.

Key contracts

Check all key contracts to see if ‘change of control’ provisions are included. These enable the other party to terminate the agreement if the company’s corporate ownership changes. If a material contract can be terminated by the other party, a potential buyer may want to pay less.

Company books

Ensure your company’s statutory books are accurate and up to date. In particular, review the register of directors, members, transfers and share certificates, and check that all changes have been notified to Companies House. Also, make sure the shareholding position is clear and documented.

Intellectual Property

Document all intellectual property, including trade marks, patents, innovations and designs owned by the company. It’s important to understand the quality and quantity of all intellectual property assets so that you can put a value on them. Get a professional opinion on the purchase price, and consider ways in which it could be increased.

Other Legal Documents

Start gathering all key legal documents, including licences, property deeds, leases and permits to which the company is subject. Also, consider any past and potential future claims against your company the seller could see as a potential risk, which may affect the price. Ensure you have copies of all employment contracts and that your business’s tax affairs are up to date.

You can solve any major material issues before your business sale begins, but if none are revealed, you can proceed with the formal sale process.

We can support you through the entire process of selling your business, from an initial review of your company and its affairs through to completion of the sale. Contact our corporate solicitors.