Selling a business without involving solicitors
Discussion
Evening all,
I am seeking opinion, advice and thoughts on the following;
I own a busy, small garage business.
I want to retire.
I have an employee who wants to buy the business from me.
We have agreed a price but it does clear him out a bit, and doesn't leave him with much spare.
We rent our premises, so no buildings are changing hands. He is paying for all of the contents and equipment of the garage, along with goodwill, customer databases, websites, etc.
He has worked for me for some 6 years or so, we know each other well, we have had our differences on occasion in the past, he knows how my business operates, in fact he's become rather a lynchpin of the business and he will be able to capitalise considerably on the goodwill as he is rather a part of it.
Normally such a transaction like this would involve solicitors, however I am worried: Obviously we each need to find our own solicitors, I am worried that he could hook up with the wrong type, who might over-emphasise the issue of liabilities, and may not only end up charging him a lot of money but may focus on liabilities to the point where my employee is frightened off the idea altogether.
For my own part I have been recommended a 'slow-and-steady' solicitor who has worked for the family of a best pal for many years. Whilst I've never sold a business before and I wouldn't remotely describe myself as a businessman, I think I'm sufficiently wise enough not to have a problem in this light, but I don't think I can say the same about my employee.
By 'liabilities', I mean the issue of what happens if a repair we carried out on my watch fails on his watch and who pays, but far more importantly, what happens if someone is hurt or worse due to a failure on our part under my watch? Now, the first thing to say is that this is an extremely unlikely scenario. For instance, about 6 years ago we did have an incident that could have been nasty, we have dealt with this and have ensured the like can never happen again, and that's been it. There really hasn't ever been anything else like it happen, nor even remotely.
So, I am giving serious thought to not using solicitors, and we just draw up our own documentation. I am a sole trader but my thoughts are to changing to a ltd company, I change over all our contracts, accounts and bank accounts etc to reflect this, and then sell him the shares.
Am I missing something? Am I being totally crazy, or is this not an uncommon way to go about things?
I'd really appreciate the thoughts, advice and and wisdom of the PH business community. Many thanks.
I am seeking opinion, advice and thoughts on the following;
I own a busy, small garage business.
I want to retire.
I have an employee who wants to buy the business from me.
We have agreed a price but it does clear him out a bit, and doesn't leave him with much spare.
We rent our premises, so no buildings are changing hands. He is paying for all of the contents and equipment of the garage, along with goodwill, customer databases, websites, etc.
He has worked for me for some 6 years or so, we know each other well, we have had our differences on occasion in the past, he knows how my business operates, in fact he's become rather a lynchpin of the business and he will be able to capitalise considerably on the goodwill as he is rather a part of it.
Normally such a transaction like this would involve solicitors, however I am worried: Obviously we each need to find our own solicitors, I am worried that he could hook up with the wrong type, who might over-emphasise the issue of liabilities, and may not only end up charging him a lot of money but may focus on liabilities to the point where my employee is frightened off the idea altogether.
For my own part I have been recommended a 'slow-and-steady' solicitor who has worked for the family of a best pal for many years. Whilst I've never sold a business before and I wouldn't remotely describe myself as a businessman, I think I'm sufficiently wise enough not to have a problem in this light, but I don't think I can say the same about my employee.
By 'liabilities', I mean the issue of what happens if a repair we carried out on my watch fails on his watch and who pays, but far more importantly, what happens if someone is hurt or worse due to a failure on our part under my watch? Now, the first thing to say is that this is an extremely unlikely scenario. For instance, about 6 years ago we did have an incident that could have been nasty, we have dealt with this and have ensured the like can never happen again, and that's been it. There really hasn't ever been anything else like it happen, nor even remotely.
So, I am giving serious thought to not using solicitors, and we just draw up our own documentation. I am a sole trader but my thoughts are to changing to a ltd company, I change over all our contracts, accounts and bank accounts etc to reflect this, and then sell him the shares.
Am I missing something? Am I being totally crazy, or is this not an uncommon way to go about things?
I'd really appreciate the thoughts, advice and and wisdom of the PH business community. Many thanks.
Morning.
You are effectively looking at a management buy out from what I can see. Fine. He may be the only one ever interested in buying your business so I see where you’re coming from.
I would be looking to encourage him to see the benefits of using legal representation. It is for mutual protection. It means that he can operate effectively going forward with the assurance of warranties to protect him from unforeseen circumstances. For your part, you want him to succeed and flourish as the new owner of a business you set up and are rightly proud of.
Legals should not be expensive on a project like this. It always worries me when a family friend is the legal rep as they invariably don’t specialise in this area, can slow things down and inevitably cost you more. I can certainly see why people go down this route but hopefully the one you know is part of a larger practice with experience here.
You can discuss with your colleague the financial aspects but legals will guide you on any retention benefits - attractive to him - whereby an amount can be held back in escrow for a period of, say, 12 months to cover any claims arising from examples you give. This gives him reassurance that he is protected to a large degree. Legals will also guide you on setting de minimis levels which in turn give you added assurance that you won’t get a phone call every week concerning frivolous issues.
So to answer your question directly it is possible to use Legals only for the bare minimum of effecting the transaction. I would be inclined to involve them to a more reasonable level but the final decision is obviously between you and your colleague.
You are effectively looking at a management buy out from what I can see. Fine. He may be the only one ever interested in buying your business so I see where you’re coming from.
I would be looking to encourage him to see the benefits of using legal representation. It is for mutual protection. It means that he can operate effectively going forward with the assurance of warranties to protect him from unforeseen circumstances. For your part, you want him to succeed and flourish as the new owner of a business you set up and are rightly proud of.
Legals should not be expensive on a project like this. It always worries me when a family friend is the legal rep as they invariably don’t specialise in this area, can slow things down and inevitably cost you more. I can certainly see why people go down this route but hopefully the one you know is part of a larger practice with experience here.
You can discuss with your colleague the financial aspects but legals will guide you on any retention benefits - attractive to him - whereby an amount can be held back in escrow for a period of, say, 12 months to cover any claims arising from examples you give. This gives him reassurance that he is protected to a large degree. Legals will also guide you on setting de minimis levels which in turn give you added assurance that you won’t get a phone call every week concerning frivolous issues.
So to answer your question directly it is possible to use Legals only for the bare minimum of effecting the transaction. I would be inclined to involve them to a more reasonable level but the final decision is obviously between you and your colleague.
As a sole trader you will always remain liable for the work done while you were owner. He won’t take that on.
However, assigning the lease of the premises will almost certainly require the landlord’s consent; your solicitor should deal with that but he may well want a solicitor for that part too.
However, assigning the lease of the premises will almost certainly require the landlord’s consent; your solicitor should deal with that but he may well want a solicitor for that part too.
For both parties peace of mind and financial protection you need to do this properly.
Talk to an accountant about the Ltd company as there are tax implications when you take your money out.
A solicitor will need to be involved as said above re the lease. Do you do MOT’s, that will require paperwork. Insurance companies, banks, etc will need paperwork too.
Sit down with your employee and draw up a “Heads of Terms” agreement and both sign it. Then give it to the solicitors to enact. Should help the process.
Talk to an accountant about the Ltd company as there are tax implications when you take your money out.
A solicitor will need to be involved as said above re the lease. Do you do MOT’s, that will require paperwork. Insurance companies, banks, etc will need paperwork too.
Sit down with your employee and draw up a “Heads of Terms” agreement and both sign it. Then give it to the solicitors to enact. Should help the process.
Some solicitors specialise in this sort of thing and charge a fixed cost (circa £3k). Just because they’re a solicitor doesn’t mean they have experience in this field and I’ve seen some whose costs have considerably increased and jeapodised sales due to dragging there heals.
Do the job right and you reduce your risks. All the very best and enjoy your retirement.
Do the job right and you reduce your risks. All the very best and enjoy your retirement.
Morning all, thanks very much for your help.
Some more info: It's only a very small business, me and two mechanics, I run the office. One of the guys wants to buy the business from me and his wife is going to take over my job. We specialise mainly in one type of car, and have developed an excellent reputation with cars coming from all over to us.
The chap who wants to buy, basically he knows every aspect of the business anyway, and knows the terms of the lease and has seen how things have worked with the landlord over the past few years. In fact overall the landlord has been very good, and when we had a an issue with flooding a few years back, he responded very quickly. I don't think there's anything the employee doesn't know about the business. We are both seeking an amicable sale, I expect to be around 6-9 months after the sale at least, I'll be training his wife, she has no background in the motor trade whatsoever, I've no doubt there'll be challenges.
On the liability side, I think we're both aware of a) what can happen, b) how very, very unlikely it would be that we'd be facing a major liability problem. He knows he's getting the business at a very good price, it's less than I would like but it's as much as he can afford and I'm happy to accept, so I don't see that him having to do any warranty work would be an issue, the bigger worry is of someone coming to harm as a result of something we've done - and we regard this to be very extremely unlikely.
So, I'm struggling to see that we really need solicitors, but I need to do my best to find out what it is I'm missing, not seeing or not aware of.
Many thanks for any thoughts.
Engelberger said:
Some solicitors specialise in this sort of thing and charge a fixed cost (circa £3k). Just because they’re a solicitor doesn’t mean they have experience in this field and I’ve seen some whose costs have considerably increased and jeapodised sales due to dragging there heals.
Do the job right and you reduce your risks. All the very best and enjoy your retirement.
This is exactly what I'm afraid of, though I do also take on board the comments on doing things properly.Do the job right and you reduce your risks. All the very best and enjoy your retirement.
Some more info: It's only a very small business, me and two mechanics, I run the office. One of the guys wants to buy the business from me and his wife is going to take over my job. We specialise mainly in one type of car, and have developed an excellent reputation with cars coming from all over to us.
The chap who wants to buy, basically he knows every aspect of the business anyway, and knows the terms of the lease and has seen how things have worked with the landlord over the past few years. In fact overall the landlord has been very good, and when we had a an issue with flooding a few years back, he responded very quickly. I don't think there's anything the employee doesn't know about the business. We are both seeking an amicable sale, I expect to be around 6-9 months after the sale at least, I'll be training his wife, she has no background in the motor trade whatsoever, I've no doubt there'll be challenges.
On the liability side, I think we're both aware of a) what can happen, b) how very, very unlikely it would be that we'd be facing a major liability problem. He knows he's getting the business at a very good price, it's less than I would like but it's as much as he can afford and I'm happy to accept, so I don't see that him having to do any warranty work would be an issue, the bigger worry is of someone coming to harm as a result of something we've done - and we regard this to be very extremely unlikely.
So, I'm struggling to see that we really need solicitors, but I need to do my best to find out what it is I'm missing, not seeing or not aware of.
Many thanks for any thoughts.
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