Selling your business: the legal process and how to prepare

Getting the business ready to sell

A buyer's advisers will go through the business in detail, and each gap they find becomes a reason to reduce the price, delay the deal or ask for a specific indemnity. Preparing before you go to market closes as many of those gaps as possible and lets you decide how any remaining issues are presented. Some problems, such as missing contracts or unclear ownership of intellectual property, can take months to put right.

Areas to check are:

• company records: the register of members, past share issues and transfers, Companies House filings and the register of people with significant control, which should all match;
• contracts: key customer and supplier agreements in writing and current, and checked for clauses that let the other side end them if the business changes hands;
• employees: written contracts for everyone, restrictive covenants for senior staff, and records of any disputes;
• intellectual property: trade marks and domain names held in the company's name, and written assignments from anyone outside the company who created software, designs or content the business relies on;
• property: leases in order, with the landlord's consent requirements and any break dates understood;
• disputes, complaints, regulatory matters and data protection compliance, resolved or documented.

Intellectual property ownership needs particular attention in smaller businesses. Copyright in work created by an employee in the course of their employment belongs to the employer, but copyright in work created by a freelancer or contractor stays with them unless it is assigned in writing and signed (Copyright, Designs and Patents Act 1988, sections 11 and 90). Those assignments are easier to obtain before a sale than during due diligence, when the buyer is waiting for them.

Look also at personal arrangements tied up with the business: personal guarantees you have given, loans between you and the company, property the business uses that you own personally, and any terms in a shareholder agreement that affect a sale, such as rights of first refusal or drag-along clauses.

Share sale or asset sale

If your business is run through a company, you can sell your shares, so that the buyer takes the company with everything in it, or the company can sell its business and assets, leaving the company, and anything the buyer does not take, with you. Sellers generally prefer a share sale. The company's liabilities go with it, subject to the warranties you give, and the proceeds come directly to the shareholders, which usually means a single charge to Capital Gains Tax.

In an asset sale, the proceeds are paid to the company, and getting the money out to the shareholders is a second step with its own tax cost. Contracts, property and employees also have to be transferred to the buyer individually. Buyers sometimes insist on an asset sale because it leaves historic liabilities behind, so the structure is often part of the negotiation on price.

Other routes include a sale to the management team, which may be funded partly by payments deferred until after completion, or a sale to an employee ownership trust. The Capital Gains Tax relief on sales to employee ownership trusts was reduced for disposals on or after 26 November 2025: 50% of the gain is now chargeable, and Business Asset Disposal Relief cannot be claimed on that disposal. Our guide to buying a business explains the process from the buyer's side.

Heads of terms

Heads of terms record the deal in outline before the full agreement is drafted. Most of the document is not legally binding, but the points it settles are hard to change later, and a seller has the most leverage before exclusivity is granted. Make sure it covers:

• the price, and how much is paid at completion, deferred, or dependent on future performance;
• how the price adjusts for cash, debt and working capital, if at all;
• the length of any exclusivity period, during which you cannot talk to other buyers;
• conditions, such as the buyer's funding or a landlord's consent;
• your role after completion, and for how long;
• the scope and length of any restriction on you competing after the sale.

Keep exclusivity periods short and tied to progress, so that a buyer who is slow to confirm funding or produce drafts cannot keep you off the market indefinitely. Before sharing detailed information, ask the buyer to sign a non-disclosure agreement that also stops them approaching your staff, customers and suppliers.

Due diligence from the seller's side

Once heads of terms are signed, the buyer's accountants and lawyers review the business. You provide documents, normally through an online data room, and answer written questions. Organising the data room in advance shortens this stage and reduces the chance of the buyer finding something unexpected late in the process.

Keep a complete record of what was provided and when. The data room normally forms the basis of your disclosure against the warranties, so its contents need to be accurate and fixed at an agreed point. Decide who needs to know about the sale and when: employees, customers and competitors finding out early can damage the business if the deal falls through, and commercially sensitive information such as customer pricing may be shared only in summary, or later in the process.

Warranties, indemnities and disclosure

The sale agreement will ask you to give warranties, which are statements about the business, such as that the accounts are accurate, the company has paid its tax, there are no disputes and its key contracts are in force. If a warranty turns out to be untrue and the buyer can show that what it bought is worth less as a result, it can claim damages from you, sometimes years after the sale. The buyer may also ask for indemnities, which are promises to reimburse specific liabilities pound for pound, and in a share sale a tax covenant covering tax that relates to the period before completion.

Disclosure is your main protection against warranty claims. The disclosure letter sets out exceptions to the warranties, and a matter that has been fairly disclosed generally cannot found a warranty claim. Specific disclosures, which identify the issue and its likely effect, are more reliable than general statements. Buyers resist treating the whole data room as disclosed, and the agreement will set a standard for what counts as fair disclosure.

The second protection is contractual limits on your liability, which should be negotiated in every sale:

• a financial cap on your total liability, for example linked to the price you receive;
• a minimum amount for each claim, so that trivial claims are excluded;
• a threshold that claims must reach in total before any can be brought;
• time limits for the buyer to notify claims, which may be longer for tax than for general warranties;
• obligations on the buyer to mitigate its loss and to let you deal with claims brought by third parties.

Statements you or your advisers make during negotiations can also lead to a claim for misrepresentation. The agreement normally includes a clause confirming that the buyer relies only on the written warranties, but a term excluding liability for misrepresentation is effective only if it is reasonable (Misrepresentation Act 1967, section 3), and a seller cannot exclude liability for their own fraud in inducing the buyer to enter into the contract. Answer due diligence questions accurately, and correct anything that becomes inaccurate before signing.

Protecting the price after completion

Where part of the price is paid after completion, you become a creditor of the buyer, and if the buyer runs into difficulty the deferred payments may not be made. Ask for security, such as a guarantee from the buyer's parent company or owners, a charge over the shares or assets sold, or part of the price held by a third party in an escrow account. The agreement should also say what happens if the buyer sells the business on before the deferred price has been paid.

An earn-out, where part of the price depends on the business's performance after the sale, needs particular care, because the buyer controls the business that produces the figures. Protections include agreed accounting policies for calculating the earn-out, restrictions on the buyer moving income or costs in or out of the business during the earn-out period, rights to information, a procedure for resolving disputes about the figures, and early payment if the buyer sells the business or breaches those restrictions.

Expect to be asked to agree not to compete, approach customers or recruit staff for a period after the sale, and the courts give these restrictions real weight in a business sale. In Cavendish Square Holding BV v Makdessi [2015] UKSC 67, a seller who broke his non-compete covenants lost his right to the final instalments of the price and could be required to sell his remaining shares at a value excluding goodwill, and the Supreme Court held that those clauses were enforceable. Agree restrictions you can comply with, and check that any consultancy or employment arrangement after the sale is consistent with them.

Tax on the sale

Tax affects how the deal should be structured, so involve your accountant before heads of terms are agreed. For individual sellers in the 2026 to 2027 tax year, Capital Gains Tax is charged at 18% on gains that fall within the basic rate band and 24% on gains above it, after the annual tax-free allowance of £3,000.

Business Asset Disposal Relief taxes qualifying gains at 18% for disposals on or after 6 April 2026. The rate was 14% for disposals between 6 April 2025 and 5 April 2026 and 10% before that. The relief applies to a lifetime total of £1 million of qualifying gains.

To qualify on a sale of shares that did not come from an Enterprise Management Incentive option, the conditions must be met throughout the two years before the sale: you must be an officer or employee of the company, the company must be a trading company or the holding company of a trading group, and you must hold at least 5% of the shares and voting rights and be entitled to at least 5% of either the distributable profits and assets on a winding up, or the proceeds if the company is sold. The claim must be made by the first anniversary of the 31 January following the tax year of the sale, so for a sale in the 2025 to 2026 tax year the deadline is 31 January 2028.

Deferred payments and earn-outs raise their own questions about when tax is payable and whether relief is available on later payments, and the answers depend on how the agreement is drafted. The buyer pays the stamp duty on a purchase of shares. Take tax advice on the draft agreement as well as on the heads of terms.

Completion and after

At completion you sign the transfer documents, the board approves the transfer and any changes of director, you resign as a director if you are leaving the board, and the buyer pays. Loans between you and the company should be settled as part of the deal on terms your accountant has checked. Deal with your release from personal guarantees at completion. The most reliable way is for the buyer to refinance the borrowing, or for the lender to release you, as a condition of completion. An indemnity from the buyer is weaker protection, because it is only worth what the buyer can pay.

After completion, keep a full copy of the signed agreement, the disclosure letter and the data room. Put in the diary the dates that matter to you: completion accounts, deferred payment dates, earn-out calculations, and the date after which the buyer can no longer notify warranty claims. If the buyer raises a claim, take advice before responding, because the notice and conduct provisions in the agreement can affect whether the claim is valid.

Frequently asked questions

How long does it take to sell a business?

There is no fixed timetable. The legal work from heads of terms to completion depends on the size of the business, how well its records are organised, how quickly questions are answered, and whether conditions such as the buyer's funding or a landlord's consent have to be met. Work done before going to market, such as updating company records and putting contracts and intellectual property in order, shortens due diligence and reduces the risk of delays late in the process.

Do I qualify for Business Asset Disposal Relief?

You may, if the conditions have been met throughout the two years before the sale. For shares, you normally need to have been an officer or employee of a trading company and to have held at least 5% of its shares and voting rights, with an entitlement to at least 5% of its distributable profits and assets or of the sale proceeds. The relief taxes qualifying gains at 18% for disposals from 6 April 2026, up to a £1 million lifetime limit. Your accountant should confirm eligibility before the deal is structured.

Can a buyer claim against me after the sale?

Yes, if a warranty you gave proves untrue, an indemnity is triggered, or you misrepresented something during the sale. Claims are governed by the sale agreement, which normally caps your total liability, sets a minimum claim size and a threshold, and gives the buyer a limited time to notify claims. A matter you fairly disclosed in the disclosure letter generally cannot be the basis of a warranty claim, so careful disclosure is the seller's main protection.

What is an earn-out?

An earn-out is part of the price that is paid after completion only if the business meets agreed targets, such as profit or revenue, over a set period. It can bridge a gap between the buyer's and seller's views on value, but the seller carries the risk that the buyer's decisions affect the results. The agreement should fix the accounting rules, restrict changes that could reduce the figures, give you rights to information and provide a way to resolve disputes about the calculation.

Will I have to stay on after selling my business?

Often you will, for a period, particularly where the business depends on your relationships with customers or staff. The buyer may ask for an employment or consultancy agreement covering a handover period, and part of the price may depend on your continued involvement or on an earn-out. Agree the length of the role, your responsibilities and what happens to deferred payments if the buyer ends your role early, and make sure the arrangement fits the restrictive covenants in the sale agreement.

When should I tell my employees about a sale?

It depends on the structure. In a share sale the company remains the employer, so TUPE does not apply and its duties to inform and consult do not arise, which leaves the timing largely a commercial decision. In an asset sale TUPE usually applies, and both seller and buyer must inform, and where changes are planned consult, employee representatives, or the employees directly in smaller businesses, before the transfer. Plan the timing with the buyer and keep information confidential until then.

What happens to my personal guarantees when I sell?

They continue unless the lender releases you. Selling your shares or resigning as a director does not end a personal guarantee. Ask for your release to be a condition of completion, either because the buyer refinances the borrowing or because the lender agrees to accept a guarantee from the buyer instead. If the lender will not release you, an indemnity from the buyer gives some protection, but it depends on the buyer being able to pay, so ask for security to support it.

Sources & further reading

• GOV.UK — Business Asset Disposal Relief
• GOV.UK — Capital Gains Tax: rates
• GOV.UK — Capital Gains Tax: Employee Ownership Trusts
• legislation.gov.uk — Copyright, Designs and Patents Act 1988, section 90
• legislation.gov.uk — Misrepresentation Act 1967, section 3
• The Supreme Court — Cavendish Square Holding BV v Makdessi [2015] UKSC 67
• GOV.UK — Business transfers, takeovers and TUPE

This article is general information, not legal advice. The law changes and depends on your circumstances — always take advice on your specific situation before acting. Last reviewed 17 September 2026. AD Solicitors is a trading name of AD Solicitors Limited, a recognised body regulated by the SRA (no. 8011228).