When selling a company via a share sale, one of the most important aspects to get right is due diligence. Where a buyer is making a significant investment in buying a company, they need to be confident that the information available to them relating to the company is complete and the sellers are transparent and trustworthy. We set out below a few top tips for first-time sellers of what to expect from a due diligence exercise.
1. The whole truth and nothing but the truth
As part of the due diligence process, a seller should be prepared to answer questions thoroughly and honestly. Though this might seem frustrating and time consuming, it’s vital to ensure that a company is sold for its correct value and to reassure the buyer that this is the right investment for them.
2. Get it right the first time
When answering questions and collating documentation to provide to the buyer, sellers should ensure that the information is appropriate, correct and in date, to avoid future mishaps and repeating the process again.
3. Key areas covered
Whilst the following is not exhaustive, you'll need to ensure that you have documents and information available relating to:
- The company's corporate structure and contracts: including share capital and shareholders of the company, as well as any third party contracts (any hire purchase agreements attached to them will have to be considered).
- Workforce: sellers will need to clearly map out the structure of their workforce, including any contractors.
- Litigation/ dispute history: sellers will be asked to verify whether there has been any litigation or dispute against the company and if so, the buyer is going to want to know the details and whether this has been solved or is ongoing.
- Intellectual property: sellers should be prepared to provide information on any intellectual property that the company may own.
- Real estate and insurance: the property where the company is located and the types of insurance that it may have.
4. Documents equate evidence
Providing documents to the buyer equates providing evidence to support the answers to the due diligence response. Documents showing the structure and financial position of the company, in addition to any third party contracts, will be required (any hire purchase agreements attached to the third party contracts will have to be considered). If there is, or has been, any litigation or dispute against the company, it is likely that evidence relating to it will need to be provided. Sellers should also be prepared to provide any insurance policies which they may have and where the company has employees and/or associates / self-employed persons, an anonymised list of those individuals will also need to be evidenced, alongside their employment and/or associate contracts.
Answering all the questions and providing all the necessary documents in a timely manner will ensure that the due diligence process runs smoothly for both parties.