Solicitors in Birmingham

SMALL BUSINESS FAQS FROM BIRMINGHAM SOLICITOR

What are some general things I should consider when preparing my business for sale?

In general, you need to think of how you intend to structure the sale, the type of business you own, what you want to sell and the implications of doing so. If, for example, you are selling a limited company, you need to consider whether you will sell the shares or just the assets of the company.  Selling shares tends to make the transaction more complicated since you are also transferring the liabilities of the company as well.  Another important point to consider is the value of the business.  When making a valuation, you should seek professional advice.  To make the valuation process smoother, you should also make sure that all your financial statements and documents are up to date, properly organised and as accurate as possible.

When is a good time to sell?

The simple answer is whenever you are ready.  However, if possible, it makes sense to sell when your business is doing generally well for the obvious reason that any valuation made is likely to be higher.  If you are going through a bad period, but foresee good performance to be obtainable in the near future, it may be worth waiting.  If, however, you cannot foresee this, there are people out there who are willing to buy struggling businesses.  Buyers will be interested where they can see potential; keeping your financial records organised and accessible will help investors consider this.

How can I minimise the amount of tax I pay?

This is a complicated area which depends on numerous factors such as the size and type of your business, how and what you intend to sell.  You should consult a tax advisor who will be able to advise you as to how you should apportion the sale price between the assets sold.

Some of examples of things you might want to consider:

• If you business is a limited company, selling shares might be the best option.
• If the seller keeps the value of the shares low, tax outgoings should be reduced since the sale price of the shares are taxable as income.
• The value of assets should be properly and accurately recorded as any discrepancies might result in a balancing charge that could increase the seller’s tax bill.

There are countless possibilities, so professional advice is essential.

With regards to employees, what things should I consider?

Under the Transfer of Undertakings (Protection of Employment) Regulations 1981 (TUPE), the rights of employees are protected when the business is sold as a going concern.

In practice, this means the employees will be employed by the buyers, meaning if the employee has any claim against the seller, it can be brought against the new owner.

If, however, you do not intend to keep the employees on when making a sale, under TUPE many things need to be considered in order to avoid employees making claims for unfair dismissal.   To avoid this, it needs to be shown that the dismissal was for an “economic, technical or organizational” reason.  The buyer may, for example, show that budgetary constraints will not allow all or part of the workforce to be taken on, and this is something you might want to leave to the buyer after he has bought the business.

It also makes sense to properly consult your employees and any relevant trade unions during the sale.

Important questions to consider before starting up a new business

• Motivation
• Business Structure
• Skills
• Funding
• Competition
• Marketplace
• Staff

Practical Tips to make sure you do business on your terms

• Ensure your Terms & Conditions are brought to your customer’s attention at the earliest opportunity. Consider setting out your terms in your brochures, catalogues or other marketing material, on your quotation forms and on your acknowledgement of order.
• Put your T&C’s on your invoices – if there is a course of dealing, this will assist your argument that your T&C’s had been brought to your customer’s attention over time.
• Train your sales staff in your procedures, ensure they have at least a basic working knowledge of the rules of contract formation (offer and acceptance) and the ‘battle of the forms’.

Exemption clauses

When entering into a contract it is common practice for parties to state what will happen if there is a breach of contract. In some cases the parties will want to make clear that if there is a breach of contract that each party knows what they are and are not liable for.

Incorporation into the contract

Exemption clauses are incorporated into a written contract when the party wanting to rely on the clause has brought it to the attention of the other party.

Notice should be given before the contract is formed or at the time of formation.

A clause can also be incorporated by a course of dealing between the parties or because the ordinary practice of the trade typically uses an exemption clause.

The types of exemption clauses

The three types of exemption clauses are exclusion, limitation and indemnity clauses. Their distinguishing features are mainly based on the ability of the injured party to recover for the breach and the effect they purport to have on the contract.   Exclusion clauses generally seek to exclude or limit the defaulting party’s duties specified under the contract.

More commonly they could be used to bind the buyer of goods or land subject to faults or defects.

Secondly, limitation clauses try to limit the rights of the innocent party when a breach has taken place. The best example is capping the amount of monies recoverable if awarded by a court. It doesn’t matter what the actual loss is, the award will be capped at the limit. Further, such clauses may also state a time limit under which to make a claim. Once the time limit has expired a claim could not be brought.

The third type of exclusion clause is known as an indemnity clause. These clauses state that in the event that one party defaults the other party will indemnify the injured party for the breach they are responsible for.

You should note that all exclusion clauses in contracts between business and consumers need to be comply with the reasonableness test set out in section 11 of UCTA 1977. In order for the clauses to be held to be valid the party seeking to rely on the exclusions clauses needs show that the term is in fact reasonable and is no more than required to cover the relevant breach.

General small business information, tips, and case law can be found here.