Buying or Selling a Business: A Guide for SMEs & Owner-Managed Businesses

Selling or buying a business is one of the most significant events in a business owner’s life. For small and medium‑sized enterprises (SMEs) and owner‑managed businesses, personal finances and reputations are often tied closely to the company, so careful preparation and understanding of the legal framework is essential. This article summarises the main considerations under UK law in 2026.

Clarify your reasons and prepare your narrative

Before approaching the market, be clear about why you are selling. Guidance suggests that explaining the reasons for a sale to staff, suppliers and customers can help maintain confidence and preserve value. Decide who needs to know and at what stage, and prepare a consistent narrative. Early, careful communication reduces rumours and anxiety that could damage the business.

Engage the right advisers early

To maximise value and protect yourself, assemble a professional team at the outset. A business broker or corporate finance adviser can identify potential buyers and help secure a competitive price. Accountants and tax specialists will ensure your financial records are robust and structure the deal tax‑efficiently. A commercial solicitor can review contracts, prepare sale documentation and negotiate warranties and indemnities.

Choose between a share sale and an asset sale

The most important structural decision is whether the buyer will acquire the company’s shares or its assets:

• Share sale – The buyer acquires the company as a going concern, including all assets, liabilities and obligations. This is often attractive when the business is profitable and holds licences or contracts that are difficult to assign. For sellers, share sales are usually simpler and can be more tax‑efficient, but they require comprehensive warranties and indemnities because the buyer inherits all liabilities.
• Asset sale – The buyer purchases selected assets (such as stock, equipment and goodwill) but not the company itself. This allows buyers to avoid unwanted liabilities and is sometimes preferred when they do not intend to keep the company running. However, each contract and licence may need to be individually assigned or novated. Asset sales can trigger corporation tax within the company and additional tax when the proceeds are extracted.

Tax implications differ significantly. Shareholders may qualify for Business Asset Disposal Relief on share sales, whereas asset sales may involve both corporation tax and personal tax. Take professional tax advice to determine the best structure.

Prepare your financial information and valuation

Buyers will scrutinise your accounts. Familiarise yourself with key measures such as earnings before interest, tax, depreciation and amortisation (EBITDA) and Seller’s Discretionary Earnings (SDE), which adjusts profit to reflect discretionary expenses. Identify non‑essential costs, such as personal travel or charitable donations, that a buyer would not incur and be ready to explain them.

Organise your financial records (profit and loss statements, tax returns, licences and deeds). Obtain a professional valuation from a chartered accountant or qualified broker; this will support your asking price and provide a benchmark during negotiations. Understanding recent sales of similar businesses in your sector can also help set realistic expectations.

Document processes and mitigate operational risks

Owner‑managed businesses often depend heavily on personal knowledge. Document your processes and systems so the business can run independently. Streamline workflows to show potential buyers that the company is efficient and scalable.

Have legal and operational experts review contracts, leases, licences and intellectual property for potential issues. Address any weaknesses before marketing the business. Secure important customer and supplier relationships by renewing contracts where possible; reliable income streams increase buyer confidence.

Maintain confidentiality

Selling a business involves sharing sensitive information. Only provide detailed financial and commercial information under a robust non‑disclosure agreement (NDA). Release information in stages as the buyer demonstrates commitment and seek legal advice to protect your trade secrets and data.

Heads of terms and exclusivity

A heads of terms (or memorandum of understanding) sets out key commercial points, including price, payment structure and any exclusivity period. While generally not legally binding, it helps prevent misunderstandings and can include a legally binding exclusivity clause. Agree early whether the transaction will be a share sale or asset sale and record this to avoid later disputes.

Due diligence

Due diligence is the buyer’s investigation into the business and is typically more extensive in share purchases. Legal due diligence reviews corporate structure, contracts, property, intellectual property, litigation, employment and compliance issues. Financial due diligence verifies accounts and tax compliance. In an asset sale, due diligence focuses on the assets being transferred.

Prepare a data room containing relevant documents (accounts, contracts, licences, intellectual property registrations and insurance policies). Respond to enquiries promptly to maintain trust and momentum.

Employment and TUPE

If you are selling assets, the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) may apply. TUPE automatically transfers employees to the buyer on their existing terms and preserves continuity of employment. You must inform and consult staff beforehand, and dismissals connected to the transfer are likely to be automatically unfair. If the transaction is a share sale, the employer remains the same entity, so TUPE does not apply.

Contracts, licences and regulatory approvals

In share sales, most contracts remain in place; however, some agreements include change‑of‑control clauses requiring consent. In asset sales, contracts and licences must be assigned or novated. Check that key licences (for example, for regulated activities) can be transferred. Intellectual property rights must be properly registered and assignable.

Acquisitions in sensitive sectors may require notification under the National Security and Investment Act 2021; completing a notifiable acquisition without approval can result in civil or criminal penalties. Ensure you comply with sector‑specific regulatory requirements.

The sale agreement: key provisions

The Sale and Purchase Agreement (SPA) for a share sale, or Asset Purchase Agreement (APA) for an asset sale, is the central document governing the transaction. It identifies the parties, describes what is being sold (shares or specific assets) and sets out the purchase price and payment terms. It should include any price adjustments or earn‑out mechanisms based on future performance and list conditions that must be satisfied before completion (such as regulatory approvals or shareholder consents). The agreement allocates risk through representations and warranties about the business and a disclosure letter that qualifies those statements. Indemnities compensate the buyer for specific known risks (for example, outstanding tax investigations). Covenants govern conduct before and after completion, including non‑compete and non‑solicitation obligations. It also contains confidentiality provisions, termination rights and a schedule of ancillary documents (board resolutions, employment agreements, loan notes, escrow deeds). Work with experienced advisers to tailor the agreement to your business and to negotiate caps, time limits and other liability limitations.

The sale agreement will include:

• Warranties – promises about the state of the business and its assets;
• Indemnities – commitments to compensate the buyer for specific risks.
• Disclosure letter – provide for a detailed disclosure letter explaining any issues that qualify the warranties; failing to disclose can lead to liability.
• Limits on liability – negotiate limits on your liability (for example, caps and time limits) to protect yourself.

Financing and payment structures

Transactions can be funded through cash, bank finance, deferred consideration (earn‑outs), vendor loans or investor capital. Earn‑outs tie part of the price to future performance; define metrics and accounting policies clearly to avoid disputes. Vendor loans require security and interest agreements. Agree payment mechanics such as escrow or retention accounts to cover potential warranty claims.

Approvals and identity verification

Ensure board and shareholder approvals are obtained in accordance with your company’s articles and shareholder agreements. For significant asset sales of a company’s whole undertaking, shareholder approval is required under section 190 of the Companies Act 2006.

From 18 November 2025, all directors and persons with significant control (PSCs) must verify their identities with Companies House before filings; new directors must verify before appointment. Existing directors and PSCs must verify when filing confirmation statements. Unverified individuals cannot file documents, and failing to verify can result in criminal offences. Ensure you and your advisers are verified to avoid delays.

Completion and integration

At completion, execute the sale agreement and ancillary documents, transfer share certificates or asset titles, pay the purchase price, make Companies House filings, and hand over corporate records. Notify HMRC of share transfers and pay stamp duty within thirty days. After completion, integrate systems, update bank mandates, and inform customers and suppliers of the change of ownership.

Conclusion

Buying or selling an SME or owner‑managed business involves complex legal and financial issues. Plan early, engage experienced advisers and prepare thorough documentation. By understanding the difference between share and asset sales, preparing your financials and legal affairs, and complying with employment and regulatory requirements, you can maximise value and minimise risk.

Disclaimer: This article provides general guidance only and does not constitute legal advice. You should seek tailored advice before taking or refraining from any action.