In this blog article, we are going to take a look at limited companies, the benefits of having a limited company, especially buying and selling them.
The term ‘limited company’ is commonly used in business circles and is well understood by accountants and solicitors. But, what is an LLC? The Law views a limited business in a specific way: they are ‘incorporated’. This means that these businesses can own assets in their own right and have their own identity. In a private limited company, the legal responsibility of debts falls on the owners’ shoulders. This is limited to the amount of capital guaranteed or invested.
Directors of such companies have crystal clear responsibilities that need to be taken seriously. They are not necessarily the same as shareholders.
This should give you a good idea regarding what makes a company a limited company. Below, we reveal more about buying and selling this type of business.
The Benefits of Having a Limited Company
A lot of people in business prefer the option of a limited company because it means that they do not have any personal liability. This is an environment that is ideal for entrepreneurs seeking financial gain where there is always some form of risk involved.
Other benefits include the name of your business being protected by law, easier funding, a more professional image, and less personal tax than sole traders.
Buying and Selling Advice
If you are thinking of selling a limited company, we have some tips to help you.
Firstly, you should keep the process confidential and discreet. The fewer people that know, the better. It is better if your employees and the competition do not know that the company is for sale. This is because a leak could impact morale, work efficiency, and sales revenues, and so it is best to avoid this. With the right process, this is achievable.
In addition, instead of selling the company’s trade and assets, you should sell the shares in a limited company. There are numerous reasons why this is the case.
Not only is it better for taxation, but also it is also more confidential.
Another tip is to make sure you seek advice from professionals when it comes to the valuation of the business. An independent advisor with relevant industry experience can ensure you get the most value from the sale and that everything is handled efficiently, correctly, and confidentially.
The firm’s auditors should not carry out the valuation. A dispute can arise when valuing a minority shareholding in a limited company, as some will feel a minority shareholding is less attractive and, therefore, worthless pro-rata.
This is why professional advice is paramount.
There is room for negotiation and the Memorandum and Articles of Association or Constitution of the company must be reviewed.
This document will include provisions for the transfer of shares in the limited company, which will impact the price of shares and marketability.
Therefore, when creating a new limited company or buying shares, it is crucial to be clear on the terms regarding selling the shares. This may sound counter-intuitive, as planning the exit when starting out seems like an illogical approach.
However, it can make a huge difference. Plus, take the time to hire the right advisor, with a great track record in dealing with limited companies, and you will find the process a lot easier.