15th January 2020

Exiting your business – assets and employees

A common question among owners looking to sell on their business is: How best can I understand and fully document the value of the business’ assets?

When selling a company it is the shares that are sold, as opposed to the business or assets owned by a company. Who holds the legal title to these shares is set out in the company’s statutory books.

Discrepancies between the statutory books and either the records at Companies House, or the sellers’ understanding of how the shares are held between them, can bring into question the buyer’s ability to take legal ownership of the shares.

In extreme cases, an application to the court is necessary to rectify the situation and clarify that the sellers do hold the shares. More often than not, last minute and not insignificant efforts are made to reassure the buyer that they can take legal title. These reassurances usually include an indemnity to address any adverse financial impacts which could arise as a result of the discrepancies, particularly where the shares are held by directors or employees (meaning penalties and interest under the PAYE regime could apply).

It really is in the interest of any shareholder looking to sell their company to keep their statutory books accurate and up to date.

Another big question is how and when to communicate your plans to your employees. John told readers of Insider magazine: “In a share sale, there is no legal obligation to notify employees at any specific point in the transaction – it’s a matter of agreeing with the buyer what makes most sense.

“If you go down the asset sale route, things are made more complicated as Transfer of Undertakings (Protection of Employment) Regulations apply – also known as TUPE. Among other things, this imposes an obligation on both the seller and buyer to inform and consult employee representatives (including trade unions where recognised) on the effect the transfer of employees might have on the workforce.”

While the seller must notify employees early enough to allow consultations to take place ahead of the transfer, there is no prescribed timeframe. It will depend on the extent and nature of the changes proposed to the terms of employment.

Taking expert advice early will help ensure the specific circumstances of the transaction are taken into account when setting out timeframes.

To discuss selling on your business, please get in touch with John Richardson or another member of Thrings’ Corporate team.

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