Legal Considerations When Selling Your Business

Selling a business is one of the most important transactions you’ll ever complete — and the legal framework behind it can make or break the outcome.

Whether you're preparing for retirement, exploring a strategic exit, or passing the baton to a new owner, understanding the legal implications of a business sale is critical. From early-stage preparation to final completion, getting the legal side right helps reduce risk, protect value, and prevent costly delays.

At BusinessExits.co.uk, we work closely with experienced legal advisers to help owners navigate the sale process with clarity and confidence. In this article, we explore the key legal considerations every UK business owner should be aware of when planning an exit.

1. Deal Structure: Share Sale vs. Asset Sale

The first legal distinction to make is how the deal will be structured. Most business sales fall into one of two categories:

Share Sale

• The buyer acquires shares in the company

• Legal entity remains the same (with all assets, liabilities, contracts, and staff)

• Common for limited companies

• Often preferred by sellers for tax efficiency (e.g. Business Asset Disposal Relief)

Asset Sale

• The buyer acquires selected assets (stock, equipment, goodwill, IP, etc.)

• Liabilities often stay with the seller

• Common for sole traders or where buyer wants to limit risk

Why it matters:

The structure impacts everything from contracts and employees to tax, warranties, and due diligence. A good legal adviser can help negotiate the right structure based on your goals.

2. Heads of Terms (HoTs)

Before detailed legal work begins, most deals start with Heads of Terms — a non-binding document outlining the key terms agreed in principle, including:

• Purchase price and structure

• Deal timeline

• Exclusivity period

• Conditions (e.g. due diligence, financing)

• Confidentiality and warranties

Why it matters:

While not usually legally binding, HoTs set expectations and reduce misunderstandings. It's important to have these reviewed by your adviser before signing.

3. Legal Due Diligence

Buyers will want to review your business in detail before committing. Expect legal due diligence to cover:

• Company structure and shareholding

• Contracts (clients, suppliers, staff, property)

• Intellectual property (trademarks, software, patents)

• Regulatory compliance

• Employment terms and liabilities

• Litigation or disputes

• Data protection policies

Why it matters:

Incomplete, unclear, or risky documentation can delay or derail a deal. Preparing well in advance with a legal health check can avoid surprises.

4. Warranties and Indemnities

Most sale agreements include warranties (statements of fact about the business) and sometimes indemnities (promises to reimburse for specific liabilities). Examples include:

• Ownership of shares

• No undisclosed debts or legal claims

• Valid contracts and employee terms

• Accurate accounts and tax compliance

Why it matters:

These clauses protect the buyer but can expose you to post-sale claims. Your solicitor will help negotiate fair wording and may suggest limits on liability, such as time caps or financial thresholds.

5. Employment Law (TUPE)

If you’re selling via an asset sale, the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) may apply. This protects employees whose roles transfer to the buyer. Under TUPE:

• Employees usually transfer on existing terms

• Both buyer and seller must consult with affected staff

• Dismissals connected to the sale may be automatically unfair

Why it matters:

Failure to comply with TUPE can result in legal claims. Your legal adviser will guide you on process, obligations, and risks.

6. Restrictive Covenants

Buyers often ask for non-compete or non-solicitation clauses to protect the value of the business post-sale. These may prevent you from:

• Starting a competing business for a set period

• Approaching former customers, suppliers, or staff

• Using the brand or trading name

Why it matters:

These terms are enforceable if reasonable in scope. A solicitor can help ensure the restrictions are fair and proportionate to the deal.

7. Completion and Post-Sale Obligations

On completion, legal ownership formally transfers to the buyer. But the paperwork doesn’t end there. You may still be involved via:

• Deferred payments or earn-out clauses

• Handovers or consultancy agreements

• Escrow arrangements (where part of the payment is held for a period)

• Post-sale warranties or tax undertakings

Why it matters:

You need to understand your responsibilities after the deal closes. Make sure obligations are clearly defined, time-limited, and realistically achievable.

8. Tax Implications and HMRC Clearance

Legal and tax planning go hand in hand. While your accountant or tax adviser will lead on tax strategy, your solicitor may assist with:

• SPA drafting to align with tax advice

• Entrepreneurs’ Relief (now Business Asset Disposal Relief)

• HMRC clearance applications

• Trust or holding company structures

Why it matters:

Getting the structure right — and documented correctly — can significantly reduce your tax bill.

Don’t Leave Legal to the Last Minute

Many business sales are delayed or fall through due to poor legal preparation. By getting expert legal advice early — ideally 6 to 12 months before a planned sale — you reduce risk, improve buyer confidence, and give yourself the best chance of a clean, successful exit.

At BusinessExits.co.uk, we work closely with experienced legal and tax advisers to support owners through the entire sale process. Our role is to guide, protect, and maximise the outcome for you.

Planning to Sell?

If you’re considering a sale in the next 12–36 months, let’s talk. Visit BusinessExits.co.uk to start with a confidential review of your exit options — including legal and tax planning support.