Selling company shares: preparation, due diligence and completion

Choose between a share sale and an asset sale

In a share sale, the buyer acquires shares in the existing legal company. The company’s history remains relevant because its debts, contracts, tax position and employment relationships do not disappear simply because its owners change. Buyers therefore investigate more than the equipment and current customer list.

An asset sale involves the company selling specified business assets or an undertaking, with different contract-transfer, employment and tax consequences. The shareholders may then need a separate lawful route to receive proceeds from the company. Do not compare headline prices without modelling who receives the cash and what liabilities remain. A solicitor and tax adviser should assess the actual deal rather than treating either route as automatically better.

Check ownership and transfer restrictions early

Verify the register of members, share certificates, allotments and previous transfers. The ownership record should match what the sellers claim to sell. Share classes, options, convertible instruments and charges over shares can affect the transaction. A confirmation statement is useful public information but is not a substitute for a complete title review.

Read the articles and shareholders’ agreement for pre-emption, consent, drag-along, tag-along and other transfer rules. Identify required approvals and releases before agreeing a completion date. If family members or minority investors own shares, do not assume the founder can sign for everyone. Resolve historic record gaps honestly with advice rather than creating backdated documents.

1. 1

   Reconcile the register of members with certificates and filings.

2. 2

   List all share classes and rights.

3. 3

   Identify options, security and other claims.

4. 4

   Review transfer restrictions and required consents.

5. 5

   Confirm every seller’s authority and title.

Prepare a due-diligence record that tells a consistent story

Buyers commonly examine accounts, tax returns, payroll, customer contracts, intellectual property, staff matters, licences, litigation and data practices. Keep explanations tied to records. A spreadsheet claiming recurring revenue needs supporting contracts and retention evidence; a profit figure needs reconciliation to the accounts and any proposed adjustments.

Separate confidential information and personal data from material that can be shared immediately. Agree appropriate confidentiality and controlled access with the advisers. Provide accurate disclosures without unnecessarily publishing staff or customer details. Issues found early can be resolved or priced; concealed gaps can become warranty claims after completion.

Understand how the headline price becomes cash received

A deal may use a cash-free, debt-free price, working-capital adjustment, completion accounts or a locked-box mechanism. These terms affect the actual proceeds and require definitions that fit the company. Director loans, deferred income and cash held for tax can become negotiating issues rather than automatically increasing the seller’s payout.

Earn-outs, deferred payments and escrow create exposure after the buyer takes control. Define measurement, access to records, operating constraints and dispute procedures. A price partly dependent on future performance is not the same as cash at completion. Budget adviser fees and taxes and assess security for deferred obligations before committing to a deal.

• Distinguish enterprise value from shareholder proceeds.
• Agree debt, cash and working-capital definitions.
• Review director loans and transaction expenses.
• Test earn-out assumptions and measurement controls.
• Plan for retention, escrow or deferred payment risk.

Review warranties, disclosures and tax separately

The share purchase agreement can contain business warranties, tax covenants and specific indemnities. The disclosure process qualifies particular statements with actual information. A general assurance that everything is fine is not a substitute for reviewing each warranty against the company’s records. Sellers should understand claim limits, time periods and their allocation of liability.

Tax on a share disposal depends on the seller and facts, including residence, share ownership, employment or office status, qualifying periods and available reliefs. Business Asset Disposal Relief is not guaranteed because a company is small. Check rates and eligibility at the transaction date rather than copying an old percentage into the sale forecast. The buyer’s Stamp Duty analysis is a separate issue from the seller’s gains tax.

Worked example: an offer is not the completion payout

Illustrative example: a buyer offers £300,000 on terms requiring £40,000 of defined debt to be repaid and leaving £30,000 deferred. Ignoring other adjustments, immediate proceeds before tax and fees may be £230,000: £300,000 less £40,000 debt and £30,000 deferred. The agreement’s definitions decide whether that simplified calculation is appropriate.

If the deferred £30,000 depends on an earn-out, the seller may not receive it in full. The accountant also assesses whether the £40,000 includes director balances or liabilities already reflected elsewhere, avoiding double deduction. This example is a negotiating illustration, not a valuation method or personal tax calculation.

Build a sale-readiness file before negotiations intensify

A founder preparing for a sale should reconcile ownership and organise the company’s records before granting broad buyer access. The file explains shares, classes, options, director loans, security, tax returns and material contracts. It separates genuine recurring revenue from assumptions and identifies customer change-of-control clauses. Intellectual-property rights from freelancers and former staff are checked against the documents. Issues are recorded honestly so advisers can plan a correction or disclosure rather than discovering them during the final week of a transaction.

When an offer arrives, the founder asks the advisers to convert the headline value into an estimated completion and post-completion cash schedule. It identifies debt, cash, working-capital adjustments, fees, retention and earn-out conditions. Each definition is tested against the actual balance sheet so the same liability is not deducted twice. Seller tax and buyer Stamp Duty are assessed separately, including relief eligibility and timing. The founder also reviews what warranties and tax covenants survive the sale and how liability is shared among multiple sellers.

Completion is then run from an agreed checklist with responsibility for funds, documents, consents, statutory updates and secure handover. Access to bank and company credentials is coordinated with actual completion conditions. The seller retains the evidence needed for tax and potential contractual claims, while confidential and personal information is handled through agreed controls. Any continuing employment, consultancy or earn-out role is documented separately. A business sale is finished operationally only when ownership, records, control and payment all reflect the agreed deal.

1. 1

   Gather the records described above before making the decision.

2. 2

   Review the case-specific assumptions with the appropriate adviser.

3. 3

   Record the agreed action, responsible person and relevant dates.

4. 4

   Reconcile the outcome to the company’s actual records.

Coordinate completion, registration and handover

Completion needs more than signing a transfer form. Coordinate payment, signed documents, approvals, share certificates, register updates, security releases and any required Stamp Duty process. Check the applicable filing deadlines and who will handle each task. The company should not update ownership records contrary to required stamping or legal conditions.

Ownership changes can also affect PSC information, director appointments, identity requirements, account access and contract notifications. Use a controlled handover rather than giving every company credential to a buyer before payment and completion conditions are met. Keep copies of the deal records and tax documents for the required periods. Plan what role, if any, the founder retains after sale and document it separately.

Common questions

Official sources & further reading

This guide draws on the official guidance below. Rules, fees and individual circumstances can change; check the relevant source before acting.

• GOV.UK: Tax when you sell shares
• GOV.UK: Business Asset Disposal Relief
• HMRC: Stamp Duty on shares

General UK information, primarily for private companies limited by shares. This is not personalised legal, tax or financial advice. An accountant or solicitor can help apply the rules to your situation.