Part 1 – How to sell your business? 4 Things to consider
18 April 2017

– Summary

Do you want to sell your business? If your answer is "yes", you will find this first part of our article on selling your business helpful.

As an owner of a business, you may eventually want to sell your business.  You may be approached by a potential buyer or actively look for a buyer yourself.  Depending on the kind of business entity (i.e. private company; public company; personal liability company; partnership; sole proprietor) there may be certain requirements that need to be met, after finding a buyer but before being able to lawfully sell your interest.

There could be several reasons a business owner might wish to sell an interest in their business; often it is to raise capital for the operations of the business (where only part of the business is sold) or where the intention is to cash-in completely.

The first part of our 2 part series deals with:

Click here for part 2.

For this article we are going to focus on private companies; to sell your business is usually complicated and you may encounter many pitfalls so it is best to approach any sale in an unemotional and thorough manner.

Sale of shares (interest) or sale of business assets

Generally, buyers prefer to purchase the assets of a business rather than the shares.

 

Assets can include equipment; immovable property; intellectual property; corporate identity; goodwill; etc.

A purchase of assets means the buyer does not inherit the liabilities or problems of the business such as creditors; tax implications or even staff; and, these liabilities would remain the responsibility of the original owner.

A sale of shares of the business means the purchase of the actual entity of the business (i.e. the company).  This is simpler from a logistical perspective and generally preferred by the original owner, as there is only one transfer of ownership (i.e. the ownership of a company from one person to another), rather than transfer each asset individually.

The above envisages the sale of the whole of a company; however, the owner may only own part of the company while the other shares are owned by other shareholders.  In such circumstances, the other shareholders have rights that are acquired in terms of the Companies Act; the Memorandum of Incorporation or a Shareholders Agreement.  These rights need to be adequately addressed before any sale can be allowed.  There are circumstances, where a shareholder might not be able to sell their shares in a company at all because of the other shareholders’ rights.

Co-shareholders

If you co-own your company with other shareholders you will most likely need to discuss your desire to sell your business and your shares to a third party (i.e. not an existing shareholder).

 

Often your co-shareholders may be required to accept the potential buyer for you to proceed with any sale of shares or you may be required to offer your shares to your co-shareholders first before offering them to the potential buyer.

As previously mentioned, these requirements are dependent on the Companies Act; the Memorandum of Incorporation or a Shareholders Agreement.  So it is usually necessary to consult an attorney before proceeding with any sale of shares.

Due diligence

Due diligence is the process through which a potential buyer satisfies themselves that a company they are considering buying is to their satisfaction.

 

It can include investigating your accounting records; vetting your existing contracts; etc.

During this process, a seller is expected to co-operate as much as possible.

Honesty

Business owners often feel they should show only the strengths of their business.  This is your prerogative, however, as previously mentioned, to sell your business is usually complicated and very few people will buy into a business without proper due diligence.

 

Through the process of due diligence, all aspects of the business should be revealed … the good and the bad.  If you are honest in the beginning you will likely save yourself time and money.

Get a Shareholders Agreement now

Use iLawyer.co.za to make a Shareholders Agreement document today.  iLawyer.co.za is an online automatic Legal Document builder that allows you to make quality legal documents in minutes at low prices.

If you have a company or if you are starting a company you should have a Shareholders Agreement.

DISCLAIMER: THERE ARE MORE CONSIDERATIONS THAN WE CAN COVER IN THIS ARTICLE SO ONLY USE THIS INFORMATION AS A GUIDE.   THIS INFORMATION DOES NOT CONSTITUTE LEGAL ADVICE.  IT IS ALWAYS BEST TO DISCUSS YOUR SITUATION WITH AN ATTORNEY; CONTACT US AT 0861 88 88 35helpdesk@gcm-legal.com AND THROUGH THE CONTACT FORM ON THIS PAGE.

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