The legal issues to consider when selling your business will depend largely on its status, be it a sole trader, partnership or a limited company.
Legal advice is essential when selling a business but sellers should have a basic understanding of the issues that need to be considered and the responsibilities different entities place upon them.
Self-employed sole trader
Self-employed sole traders have legal responsibilities to the staff they employ and must ensure that their legal rights are not breached. Staff must be notified when the business is to be sold and the reasons for selling. They must also be informed about redundancy terms or relocation packages where necessary.
There are several tax considerations to bear in mind when selling. If the sole trader is registered for VAT, the VAT registration number may be transferred to the new owner. A Self Assessment tax return must be sent by the deadline with the date the business stopped trading on the return. Capital Gains Tax (CGT) may be payable on the sale of the business and there may be reliefs available such as Entrepreneurs’ Relief. Moreover it may be necessary to notify HMRC if the seller is no longer going to be self-employed.
Business partnership
Legal issues on the sale of a partnership vary, depending on whether the entire partnership is being sold or a share of the partnership. If there is a partnership agreement, this should be checked to ensure there are no restrictions pertaining to the sale of the partnership before selling. Again, employees rights will need to be considered and staff informed when and why the business is being sold as well as details about redundancy terms or relocation packages offered.
A Self Assessment tax return must be filled out where a share of the partnership is being sold. Where the whole partnership is to be sold, the ‘nominated partner’ must send a Partnership Tax Return and individual Self Assessment tax returns must be filed. CGT may be payable and reliefs may be available. Furthermore HMRC should be notified where those concerned will no long be self-employed in order to stop National Insurance contributions and the VAT registration number transferred to the new owner.
Limited Company
Where the entire shareholding of a limited company is being sold, new directors should be appointed before outgoing directors resign. CGT may be payable with the relevant reliefs and a Self Assessment tax return filed. Where charges have been secured against the company, the provider must be notified within 21 days of the sale and the VAT number must be transferred to the new owner.
Employees are the major concern for owners of limited companies when selling part of the business. If employees are affected by the sale then they must be informed about when and why part of the company is being sold and details about redundancy terms or relocation packages if necessary. In some circumstances it may be necessary to obtain clearance from HMRC regarding the deal to avoid unexpected tax liabilities cropping up post-completion.
For more information please contact James Crichton via e-mail jcrichton@rollingsons.co.uk or by telephone on 0207 611 4848.
