Buyers and investors will always want to investigate a company thoroughly before they commit financially to any deal. Inevitably there will be a significant amount of due diligence and disclosure required as part of this investigation so ensuring your company is in good order before this will save valuable time when a sale or investment opportunity arises.
Review your policies
The Bribery Act 2010 and the Criminal Finances Act 2017 mean that companies are under a duty to ensure that adequate or reasonable procedures are in place to prevent associated persons from engaging in bribery or facilitating criminal tax evasion. What constitutes adequate or reasonable procedures will depend on the size, nature and complexity of your business, however as highlighted in a recent case, under the Bribery Act size is not the only determining factor.
Companies, large or small, must show that they have actively considered their exposure to bribery and tax evasion, and ensure that this is documented. Increasingly, buyers are looking for assurance from sellers that any policies in place are actively brought to the attention of employees (including appropriate training) and are reviewed regularly. Any procedures in place must be enforced robustly, reviewed regularly and updated accordingly based on any changes to the company or its organisation.
The introduction of GDPR on 25 May 2018 means that all companies processing personal data must ensure that this is being done so lawfully, transparently and for a specific purpose. This extends much further than the “opt-in” emails that have been clogging your inbox, and requires companies to actively audit the information that they hold, and to consider whether they are holding and using it lawfully. Going forward buyers are likely to want to see evidence that the new GDPR principle of accountability (requiring companies to demonstrate compliance with GDPR) has been satisfied.
Locate your key contracts
Companies make contracts on a daily basis, whether by telephone, over the internet, or through a board room negotiation. Buyers will want to be sure that any contracts are not unduly onerous, or capable of termination on the sale of the company (amongst other things). This means that you should endeavour to keep fully signed copies of your contracts, and copies of full sets of terms and conditions. This is particularly important for any material contracts with suppliers or customers, any lease-hire or finance arrangements, and any documents relating to any property that your company may own or occupy.
Review your employment arrangements
Any potential buyer will want to review your employment arrangements, and particularly your employment contracts. Whether employees are employed on a set of standard terms and conditions or bespoke contracts, you must ensure that they comply with current laws, that all employees are provided with a copy of their contract and that they have all been signed. All employees must also be provided with, or given access to, your discipline and grievance procedure.
You must also ensure that you are calculating holiday pay correctly. Recent court decisions have determined that a specific analysis should be conducted to consider whether or not additional payments, such as bonuses and commissions, should be considered as part of holiday pay. This will be more important for businesses where overtime and bonuses are paid regularly. Buyers will be keen to understand how you calculate holiday pay, and may ask for an indemnity in the event that you have not calculated this correctly.
Review your real estate
Any due diligence investigation into your company is likely to focus heavily on any property owned or held by the business, particularly where buyers are relying on a bank to provide funding, as a bank will be keen to ensure that any security it may be taking over the property is worthwhile. It is important that you maintain up to date records relating to your property, and ensure that you are complying with the requirements of the freehold title or lease. You should also ensure that any hazardous substances (such as asbestos) or environmental issues are regularly managed and reviewed.
Update your statutory registers
Under the Companies Act 2006, companies are required to keep and maintain various registers, including a register of applications and allotments, a register of directors, a register of members and a register of persons with significant control. Misplaced registers can be reconstituted but this process can take some time, and so it is recommended that all statutory books are located and updated in advance of any sale.
Selling a business can be a challenging and stressful time, but taking a few simple steps to make sure your company is in the best shape possible can help to make the process run more smoothly and lead a quicker sale.
This blog post was written by solicitor Poppy Ball. For further information, please contact:
Sophie Brookes, partner, Corporate team
T: 0161 836 7823