If you’ve shed blood, sweat and tears building up your own business, the decision to sell it may be one of the hardest you’ll ever make. However, there can be compelling reasons for wanting to make the break: you may decide it’s time to retire to the sun or you may need some finance for the next exciting project – or maybe shifting market patterns suggest that you should get out while the going is good.

One thing’s for sure, whatever your reasons for selling up, the level of care and effort you put into the sales process will have a significant influence upon the price you receive for your business – and upon how long it will take to complete your sale.

Quinn Legal can assist in valuing your business, identifying the best strategic purchaser and advising you of tax implications. In addition, we can help you put together an information pack for prospective purchasers, market your business, carry out due diligence and, of course, draft and help you negotiate the final sale and purchase agreement.

How to prepare your business for sale

Selling a business is not a quick-fix solution: the process can begin as much as a year or two in advance. You’ll need to have a clear understanding of your objectives, an informed view of the marketplace and, above all, time to prepare your business so that it is in the strongest possible position to maximise proceeds at the time you sell.

 

Professional help with selling your business

Early involvement of an experienced advocate and accountant is vital: they will advise on how best to groom your business and allow you more time to carry on with its day-to-day operation. They may also assist in valuing the business, identifying the best strategic purchaser and advising you of tax implications.

 

Fail to prepare and prepare to fail

If you’re serious about getting the best price for your business, you’ll need to do more than simply tweak the figures on the balance sheet. You need to take an objective look at your business from every angle and identify where and how you can make it more efficient and profitable so that it proves irresistible to potential buyers. You’ll also need to consult – and if necessary, negotiate with – other shareholders and review the terms of any shareholders’ agreement.

 

Areas of the business which you should consider include:

· improving profits through identification and elimination of excessive or unnecessary personal benefits and/or expenses

· increasing your sales figures through aggressive campaigning or offering special deals for customers

· ensuring that employment contracts are formalised and up-to-date

· ensuring commitment from customers and suppliers by formalising deals with appropriate contracts

· ensuring that an effective communications plan is put in place to keep staff, customers and suppliers informed of the possible change

· reducing costs by avoiding big purchases in the run up to the sale

· ensuring that your information systems are up-to-date and transparent

· removing uncertainties in respect of any disputes, claims and actions against or on behalf of the business

· putting a tax efficient structure in place to ensure personal tax liabilities are reduced on disposal

· working at establishing a market presence that differentiates you from the competition – some businesses undertake some pre-sales PR to raise their profile

· ensuring the business looks its best for when potential purchasers visit – this may be as simple as a new coat of paint for the premises

 

What is the process for selling a business?

Once the groundwork has been done in terms of getting the business into shape, you’ll need to put together an information pack for prospective purchasers. This should include:

· the information memorandum – this is the prime selling document and is governed by the Financial Services Authority. It will include basic information about:

· details of your organisation

· position in the marketplace

· operational activities

· products/services offered

· details of management and staff

· prospects for future growth

· financial information, including :

· 3 years’ profit and loss (income) statements

· tax returns for the business

· details about any leases

· a list of loans against the business, with balances and payment schedules

· business plans

 

How to market a business for sale

With your business now (hopefully) operating from a position of strength, and armed with all the necessary information, you can now think about marketing your business. But give some thought to what time of year might be best to start: sales cycles or seasonal fluctuations may have a further impact on a potential buyer’s perception of your business.

Professional advisers will be able to use existing contacts and networks to identify potentially suitable purchasers and will also know how to research other possibilities. They will also usually make the first approach to a potential purchaser. Other possible marketing channels include newspapers, trade magazines and the internet.

 

What to do when you get a bid for your business

Following the initial approach, prospective purchasers are usually given up to six weeks to propose an indicative bid. Due diligence may be carried out on your behalf during this period to provide more in-depth information than the information memorandum and to clear up any areas of uncertainty. Following this more detailed report, prospective purchasers will be asked to submit formal bids. Obviously, the more interest you can generate, and the more competition for the purchase, the better the price you should be offered. Your professional advisers will help to evaluate the bids and negotiate with potential purchasers.

Once you award exclusivity to one purchaser, it is normal for that purchaser to then undertake their own due diligence in order to verify that all the information you have provided them with is correct. Only then will the purchaser be in a position to decide whether to continue with the acquisition, or perhaps lower their offer.

 

How to complete your business sale

Once a deal is struck, the advocates will need to put in place a ‘sale and purchase agreement’ and final negotiations will take place before contracts are exchanged.

 

Make a free enquiry

The sooner we become involved in the process of helping you to buy a business, the better understanding you will have of the associated risk and the more likely it is that your purchase will be successful.

To speak to one of our expert Isle of Man corporate and commercial advocates, ring us on 01624 665522 or email us: hello@quinnlegal.im. 

 

About Peter

Peter Cannell is a Global Law Expert in Corporate Law.

Click his photo below to find out more!

 

 

 

 

 

 

 

Whether you’re looking to buy or sell a business, you’ll have a vested interest in knowing whether the valuation is fair.

There are business brokers who specialise in valuing and marketing businesses. However, it’s always helpful for you to have some understanding of the factors on which the valuation will be based. These will vary depending on the type of business but we set out below some general factors.

 

Key factors affecting the valuation of a Business

The Property

Businesses operate from a wide range of different premises. The nature and condition of those premises can have a significant effect on the valuation of the business. Factors that will be taken into consideration include:

 

Freehold, Leasehold or Licence to Occupy?

Freehold property gives business owners exclusive occupation of the premises, offering long-term security together with the potential to alter and/or extend the premises to accommodate the growing needs of the business.

As such, freehold premises significantly enhance the overall valuation of the business. Banks will generally lend buyers up to 75% of the purchase price for the business when there is an associated freehold property. This is opposed to less than 50% when the premises are leasehold. This makes the business a more attractive proposition for a wider pool of potential buyers.

Leasehold properties limit tenants’ occupation and use of the premises for a specific period of time. The value attributed to a leasehold property will, therefore, depend very much on the terms of the lease.

For example, a lease that only has 3 years left to run, contains onerous rent review provisions, extensive repair and maintenance obligations and an uncooperative or troublesome landlord, will have the effect of reducing the overall value of the business. A lease that has more than 25yrs of its term remaining will be valued more positively, particularly if the business is in a good location.

Finally, some businesses occupy premises under a more restrictive Licence to Occupy; often small businesses. Such licences are, typically, granted on a rolling 12 month basis and

restrict the licensee’s use to a particular area of a property and for a specific use. It’s also usual for either party to have the right to terminate the licence on giving very short notice.

The temporary and restrictive nature of a licence to occupy will significantly reduce the overall value of a business.

 

Fixtures, fittings and equipment

A business’ inventory of assets can run into many pages. Identifying what’s included in the sale and establishing a current value is an important part of assessing the overall valuation of the business.

 

Operating capacity

Ultimately, the operating capacity of the business will be dictated by the physical constraints of the premises and if there is scope to extend.

 

Location

Depending on the type of business location maybe a key consideration in valuing the business. The success of a business may be closely tied with the demographics of the immediate area and the number and location of competitors.

Good access to premises is also key to attracting new customers, as is easy and adequate car parking.

 

Condition

Modern, purpose-built day premises will achieve a higher valuation than businesses occupying older premises that have been adapted for the purpose and which may have a cumbersome layout and/or require significant and costly ongoing maintenance and repair.

 

The Business

Ultimately, the valuation of a business will come down to the cold, hard figures: it will not reflect the blood, sweat and tears that have gone into creating and growing it. This can be a bitter pill to swallow for some sellers of businesses.

Factors taken into account will include:

 

Financial performance

The key factor to determine the value of the business will be an assessment of its profitability. Many sellers will wax lyrical about the amazing potential for future growth but,

when it comes to arriving at a valuation, little heed is normally paid to their enthusiasm. Potential is just that.

Instead, profitability is normally calculated by taking a weighted average of the business’s earnings before interest and tax (EBIT) from the last 3yrs of accounts and then applying a multiplier to that value. The multiplier applied by an independent valuer will depend on market forces at the time of sale. It may be in the region of 1.25 to 2.5 it is for example a nursery business where the premises are leasehold, or 4.25 to 6.25 where the premises are freehold. The multiplier will also depend on the type of business.

 

Occupancy rates

Using children’s nurseries as an example, larger nurseries offer greater capacity and should also benefit from operational economies of scale. However, the physical operating capacity of the nursery premises won’t always translate to consistent occupancy rates. A children’s nursery business that is poorly managed, marketed or operated – or which has location or access issues – may have low occupancy rates.

 

Reputation

Reputation is a key factor in valuing a business and forms part of the ‘goodwill’ of the business.

Brand identity, customer base, customer satisfaction and employee satisfaction all contribute to the reputation of the business and will be considered when assessing the value of the goodwill.

 

Staff

How many employees are there, what are their qualifications and what are their terms and conditions of employment? This will impact both on the success of the business and on the overheads of the business.

Does the business, for some reason, have difficulties retaining a full complement of staff? Whilst businesses on the Isle of Man face recruitment challenges, a business with a particularly high turnover of staff is likely to be hiding other issues.

 

Competition

How many other businesses are there and where are they based? What is their reputation and what kind of set up and rates do they offer?

If there is direct competition from a successful rival, do the demographics of the business’s catchment area provide a sufficient pool of prospective customers to maintain a healthy income stream?

Will the seller agree to the inclusion of a non-compete clause in the sale contract?

 

Circumstances of sale

Occasionally, a seller’s personal circumstances can affect a valuation. For example, if the seller is in poor health, a quick sale may be more important than achieving a full price.

 

A final word on how to value a business…

Whilst all of the factors listed above are relevant to establishing a fair value for a business, the most important point to realise is that a business is only worth as much as a buyer is willing to pay – and a bank is willing to lend!

Bear in mind, also, that much of the detail required to establish whether the figures stack up won’t be uncovered until after an offer is made and the buyer, with an advocate’s help, gets responses to pre-contract enquiries (a process known as ‘due diligence’).

The outcome of due diligence – and the warranties and indemnities that the seller is prepared to give in response – may also affect the agreed final price.

 

Contact Us

We are advocates who specialise in working with business buyers and sellers in the Isle of Man. The sooner we become involved in the process of helping you to buy or sell your business the more likely it is that your purchase will be successful. Please either call us now on 01624 665522 or complete our free online enquiry form and we will be in touch as soon as we can.

Our full contact details can be found on our Contact Us page.

 

Lorcan O’Mahony

Lorcan is the Head of Business at Quinn Legal

Click his photo below to find out more!

 

 

 

 

 

 

You want to sell your business but there’s a legal issue that hasn’t been resolved. Maybe there’s an outstanding dispute with an employee, you’re in breach of a term in your lease, or you’ve had a claim for infringement of someone else’s intellectual property rights. Perhaps there is an escalating disagreement between shareholders. Maybe you know that some of the contractual documentation you have with your suppliers is, shall we say, not quite up to scratch.

 

When faced with a legal issue or problem as a business owner you have choices:

Ignore, Pray, Worry

Keep your head buried in the sand, it might just go away

Act , but DIY

Surely you could work this out yourself …

Contact an Expert

The law of averages says that your luck will run out eventually. You may have got away with making the first two choices for months or years. But in the long run contacting an expert should be what a successful entrepreneur does automatically.

 

Now, you’re thinking this is the expensive option. You’re going to be paying fat-cat lawyers, accountants, consultants to tell you what you already know. Their fees are going to outweigh the benefit 10x. Well, I don’t believe that is the way you should be thinking about the expert. Or, at least, that’s not how we think. Your business lawyer should be honest and straight with you and their costs should be transparent.

 

So if it’s a legal claim you’re dealing with, the cost benefit analysis should be done right at the outset – and don’t just count the £££ cost, factor in management time and opportunity cost too. The same argument applies to other areas of your business. Proactive, well-delivered and executed advice on restructuring a group, new investment or a revised finance package, or on implementing correct contractual documentation (not just small print for small print’s sake!) can save your business £1,000s or £10,000s.

 

Ask any business agent what adds 10-30% to a business’ value and the ease with which it can be sold and exited – tidying up your legal documents and processes will feature at the top of their list.

 

So, if you haven’t yet considered how you will exit your business, or considered a legal audit of your business’ needs, I would encourage you to do so.

Make a free business enquiry

The sooner we become involved in the process of helping you to sell your business the more likely it is that your sale will be successful, so please contact us today. Call us on 01624 665522 or complete our free online enquiry form and we will be in touch as soon as we can. Our full contact details can be found on our Contact Us page.

 

About Lorcan

Lorcan is the Head of Business at Quinn Legal

Click his photo below to find out more!

 

 

 

 

 

 

Shareholder disputes can be damaging and disruptive for business, taking time and energy away from the running of a company and causing difficulties for everyone involved. 

Avoiding shareholder disputes and, if they do arise, dealing with them quickly and efficiently is always preferable to legal action. We take a look at how shareholders’ disputes might occur and the options for dealing with them. 

 

Causes of shareholder disputes 

There is wide scope for disagreement between companies and shareholders. The following are some of the more common issues that arise: 

• Disagreement over the way the company is being run or the direction it is taking 
• Directors exceeding their authority 

• Action by the directors that is unfairly prejudiced against shareholders 
• Negligence, breach of trust or failure in their duties on the part of a director 
• Conflict of interest, where a director has a holding or interest in another related business 
• Disagreement over appointing a new director 
• Disagreement over a director’s service contract 

• Directors not carrying out their responsibilities adequately or poor conduct 

 

What to do when a shareholder dispute arises 

 A well-drafted shareholders’ agreement will go a long way to helping avoid a dispute arising and, if there is a disagreement, it should contain details as to how the matter will be dealt with. 

This will generally be by starting with mediation to try and resolve matters without the need for legal action. An experienced corporate advocate will be able to identify the key issues in your dispute and advise you as to whether your shareholders’ agreement or articles of association have any bearing on the matter. 

They will also be able to open negotiations with your shareholders to try and find an acceptable solution. 

 

Action brought by shareholders 

 Disgruntled shareholders may seek a remedy at court for certain actions that they believe are not in their interests. 

Oppression – where the shareholders company is incorporated under the Companies Acts 1931 to 2004 (1931 Act Company) a member can bring an “oppression petition” (otherwise known as a “section 7 petition” after the section of the Companies Act 1968 under which it can be brought).  If a member, or members (can be any number) think that the affairs of the company or the directors are acting in a manner oppressive to them or some other part of the membership or in due disregard of the proper interests of said members, they can petition the Court to order the company to stop it and recompense the members in whichever way the court things would bring an end to such oppression or disregard.  For example, if the directors pay themselves excessively large salaries, sanctioned by the majority shareholders, so that there is nothing in the pot for dividends for the minority shareholders this could be seen as oppressive.  If they create a special class of shares to redirect profits away from ordinary shareholders, that can be seen as disregarding their proper interests. 

Unfair prejudice – where the shareholders company is incorporated under the Companies Act 2006 (2006Act Company) and where shareholders feel that the company is taking action that prejudices their position as a shareholder, they can make an application to the court. This can be done even before the prejudicial action has been taken. By way of example, if the directors proposed to issue more shares, diluting the voting power of the existing shareholders, this could be seen as prejudicial. 

Derivative claim – shareholders of both 1931 Act Companies and 2006 Act Companies can bring a derivative claim if a director is negligent or does not adequately carry out their duties and the court believes it is in the best interests of the company for the case to be heard. 

Winding-up petition – in the most extreme cases, shareholders may ask for a company to be wound up. This is only an option where the company has been mismanaged, where someone has been excluded from the decision-making process or where the company can no longer carry on its business.  

The court has a range of options open to it, to include ordering the company to take or cease a particular action, an injunction, an order requiring shares to be sold or the payment of compensation. 

Legal action can be damaging to a business and resolving matters by way of negotiation, mediation or other alternative dispute resolution process is always preferable.   

For more information, see commercial litigation. 

 

Contact our Corporate and commercial team 

 If you are involved in a shareholder dispute and you would like to speak to an expert corporate advocate on the Isle of Man, we will be happy to hear from you. Our team are experienced in resolving disagreements without litigation and we will work to find an acceptable outcome quickly. 

To speak to one of our expert Isle of Man corporate and commercial advocates, ring us on 01624 665522 or email us: hello@quinnlegal.im. 

 

About Peter

Peter Cannell is a Global Law Expert in Corporate Law.

Click his photo below to find out more!

 

 

 

 

 

 

 

A partnership is created when two or more people come together in business to share profit and losses. Although a written partnership agreement is not required to form a partnership, it is vital to avoid uncertainty and the automatic application of unsuitable statutory law. 

A partnership agreement is usually made for relationships of a long term nature. For those who wish to work with a company or individual on a short term basis, a joint venture agreement or consultancy agreement may be more appropriate. 

Do I need a Partnership Agreement? 

Without a partnership agreement the actions, powers and rights of each partner are controlled by the Partnership Act 1909, the provisions of which may not reflect your desired arrangement. The Act has many provisions but those which can have a significant effect include: 

• All partners are entitled to share the profits equally no matter how much capital, effort or skill they bring into the business. 
• Any partner can bring the partnership to an end just by giving notice to all the other partners. It is also dissolved if a partner dies. 
• All partners are jointly and severally liable for the liabilities incurred by the company. This means that if a debt cannot be paid then the creditor can pursue all the partners individually and one may be forced into the position of paying the whole debt by themselves. 
• Should a partner get into financial difficulties then their creditors can take assets from the partnership to settle them. 
• All partners are considered “agents” of the business and act on behalf of the other partners. They can enter into contractual and financial arrangements which are not good for the business but these will be binding. 

• All partners have an equal say in the business and decisions can take time or the business break down in the event of a severe dispute. 

Partnerships do have their advantages which include: 

• Each partner is able to specialise in their own area of the business 
• More finance can be raised than by sole-traders as more owners are investing in the
  business. As it is often a larger business than a sole-trader, it often has a better chance at generating other sources of finance e.g. bank loans, etc 
• There are no legal formalities to complete prior to starting the business 

• Partners can cover each other during times of absence, e.g. holidays or illness 

Types of partnership 

The are three different types of partnership: 

General

Two or more individuals as co-owners of a for-profit business. All partners are responsible for the liabilities and debts of the partnership. For tax purposes, partnerships enjoy single taxation. Income is reported as part of each partner’s personal income. 

Limited Liability

A general partnership which elects to operate with full limited liability can choose to set up as a Limited Liability Company, (the Isle of Man version of an “limited liability partnership” (LLP)). Unlike a General Partnership, the partners in an LLC enjoy protection from many of the partnership’s debts and liabilities. For tax purposes, the income of an LLC is taxed in the same manner as a General Partnership.

Limited

A partnership with at least one General Partner and one Limited Partner. A limited partner’s liability is limited to the amount invested, while the General Partner(s) assumes all the liabilities and debts of the partnership. For tax purposes, the income is taxed in the same manner as a General Partnership. 

What should a Partnership Agreement include? 

The aim of a partnership agreement is to provide a written structure for your business with respect to each partner’s responsibilities, rights, profit/liability sharing, entering and leaving terms, and also the terms on which disputes are resolved and the partnership can be terminated. Each agreement will vary according to the nature of the partnership but some of the topics that should be covered include: 

• Ownership interest 
• Loans by partners 

• Allocation of profits 
• Management 
• Duties of partners 
• Salaries & compensation 
• Borrowing money 

• Reimbursement 
•  Non-compete 
• Power of attorney 
• Admission of new partners 
• Meetings 

• Arbitration 
• Leaving or retiring 
• Termination 

As you can see, it is folly to operate a business under any partnership basis without an agreement in place. If you’re thinking of forming a partnership and would like further advice, speak to a member of the Quinn Legal team. 

 

Contact our Isle of Man Business Team

At Quinn Legal, our business team has extensive experience across the Isle of Man and we will be happy to help.

To speak to one of our expert business advocates, contact us on 01624 665522 or email us: hello@quinnlegal.im.