Malcolm ZoppiSun Oct 15 2023

Selling Limited Company with Bank Account: A Comprehensive Guide for Business Owners

Selling a limited company with a bank account requires understanding the legal, financial and procedural aspects.

Selling Limited Company with Bank Account: A Comprehensive Guide for Business Owners

Selling Limited Company with Bank Account

Selling a limited company with a separate bank account, can be a complex process, especially concerning legal and tax implications. As a company owner, it is in your best interest to understand the process thoroughly and ensure that you cover all necessary bases to avoid future complications.

When it comes to selling a limited company, you will need to consider several factors, including financial considerations, procedures and documentation, and managing staff during the transition. Additionally, you must deal with the company’s bank account in a proper and orderly fashion, ensuring a seamless transition for both parties.

Key Takeaways

  • Selling a limited company with a bank account requires understanding the legal, financial and procedural aspects.
  • Managing staff and finalising documentation are crucial steps in the sale process.
  • Ensuring a smooth transition for the company bank account is essential for both buyer and seller.

Understanding the Concept of Selling a Limited Company

What It Means to Sell a Limited Company

Selling a limited company involves transferring the ownership of the company to a new owner. This can be achieved by selling the entire shareholding in the company or by the company selling part of its business. When you sell a limited company, you as a director may have certain responsibilities to fulfil during the process. These responsibilities can include finalising taxes, updating your team, and ensuring a smooth handover to the new owner.

As a limited company is a separate legal entity, the money in the company’s bank account belongs to the company and not to the individual shareholders or directors. When selling the company, the bank account’s balance may form part of the sale price, or arrangements can be made for transferring a significant control of the money to the new owner.

Reasons for Selling the Company

There are several reasons why you might choose to sell your limited company. Some common reasons include:

  • Retirement or personal milestones: As a director or shareholder, you may wish to retire or pursue other personal or professional goals, necessitating the sale of the company.
  • Market conditions: You might decide to sell the company when market conditions are favourable, and your business is performing well, in order to maximise the return on your investment.
  • Business growth or strategic direction: Selling the company may be the best option if you want to raise funds for business expansion or change the strategic direction of the company.
  • Legal or financial considerations: In some cases, selling the company can be a solution to handling legal or financial challenges such as debts or disputes among business partners.

When considering selling your limited company, it is crucial to thoroughly evaluate your options and make an informed decision. Consulting with professional advisers and conducting thorough market research can help you ensure that you make the right choice in line with your personal and business goals.

Legal and Tax Implications

Company Sale and Tax Liability

When selling a limited company with a bank account, you need to consider your tax liability. As a director of the company, you’re responsible for the company tax return and paying taxes to HMRC. Ensure that the company’s tax affairs are up-to-date and accurate before the sale. This includes submitting all necessary company tax returns and settling any outstanding tax payments. Additionally, check with Companies House to ensure company information is correct and up-to-date.

Corporation Tax and Capital Gains Tax

During a company sale, the Corporation Tax and Capital Gains Tax (CGT) are two main tax implications other shareholders to consider.

  • Corporation Tax: The company must pay Corporation Tax on any profit made before the sale. Ensure proper records are kept and report profit figures as part of the process.
  • Capital Gains Tax: As the owner, you will need to pay CGT on the profit made from the sale of your company (the capital gain). To calculate your CGT, subtract the purchase price of your company from the sale price. For example, let’s assume you’re selling your company for £500,000, and you bought it for £300,000. Your capital gain is £200,000, and you’ll need to pay CGT on this amount.

It’s essential to consider any applicable tax reliefs or exemptions and ensure you claim them correctly. Make sure to consult with a tax professional to navigate the complexities of tax implications during the sale of a limited company.

Legal Advice and Due Diligence

When selling your limited company, seeking legal advice is crucial to ensure compliance with regulations and to protect your interests. A legal professional who is specialised in laws and regulations surrounding sales and acquisitions or mergers can help you prepare all necessary documentation, negotiate terms with the buyer, and navigate the due diligence process.

Due diligence is essential for both the buyer before buying the business and seller before selling the business. It involves checking the company’s financials, assets, and liabilities, including the company’s bank account. Ensure that the bank account balance is accurate and reflects any outstanding payments to suppliers or HMRC.

Remember, selling a limited company or separate business account with a bank account has both legal and tax implications. Consider seeking professional advice and taking all necessary steps to comply with the regulations, reduce tax liability, and protect your interests during the sale.

Financial Considerations when Selling a Limited Company

Understanding the Profit and Share Value

When selling a limited company, you’ll need to value your business in order to determine the share price. You may wish to consult professionals, such as accountants, to help with this process. It’s important to have a clear understanding of your company’s profits, assets, and liabilities. Be prepared for negotiations with potential buyers, who may question these values.

Handling Company Debts and Liabilities

Before selling, it’s crucial to address any outstanding debts or liabilities associated with the business. Work with your creditors to resolve any outstanding obligations and make sure proper documentation is provided. This ensures the financial health of your company and can make the sale process smoother.

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  1. Settle current debts: Begin by working with your creditors to pay off existing debts and generate a plan to tackle remaining liabilities.
  2. Create a clear record: Maintain records of all debts, liabilities, and actions taken to resolve them during the sale process.
  3. Prepare for due diligence: Potential buyers will want to ensure the company is in good financial standing, so be prepared to provide all relevant documentation.

Dealing with Company Assets

When selling a limited company with a bank account, there are several factors you’ll need to address:

  • Company bank account: Decide whether you’ll transfer the existing bank account to the buyer or close it and create a new one. If transferring, ensure the necessary authorisations are obtained from the bank.
  • Asset sale vs. share sale: You will need to determine whether to sell the company as a whole, including its shares (share sale), or just its assets (asset sale). An asset sale could potentially result in a higher tax bill compared to a share sale but will depend on your specific circumstances.
  • Capital Gains Tax: Be aware that you may have to pay Capital Gains Tax (CGT) on the profit made from the sale of the company or its assets. This may be reduced with Business Asset Disposal Relief if you have owned the business for at least two years.

Remember, it’s essential to be transparent about your company’s financial status when engaging with potential buyers. This builds trust and increases the likelihood of a successful sale.

Procedures and Documentation

When selling a limited company with a bank account, there are specific procedures and documentation requirements to be met. This section outlines the process, focusing on Companies House requirements and maintaining accurate records and paperwork.

Companies House Requirements

As the owner of a limited company, you need to inform Companies House of the sale. Within 15 days of the company’s transfer, use the stock transfer form(s) to record the share transfer and update the company’s statutory registers. To accurately record the changes, you must obtain the necessary documentation, such as the signed stock transfer form, board meeting minutes, the shareholders agreement and a fresh shareholders’ resolution.

Moreover, ensure to update your company’s confirmation statement, reflecting the new ownership. The updated statement must include the following details:

  • Date of share transfer
  • Names and addresses of the new shareholders
  • The number of shares transferred

Note: You must file the confirmation statement with Companies House within 14 days of the sale.

Maintaining Accurate Records and Paperwork

Keeping up-to-date records and paperwork is essential for a smooth transfer of your limited company. Accurate record-keeping helps avoid potential disputes and ensures compliance with legal requirements. Key elements to consider include:

  1. Statutory Registers: Maintain an up-to-date record of all important company information, such as shareholders, directors, and secretaries. Ensure your statutory registers are readily available for inspection.
  2. Companies Register: Register your limited company’s sale with Companies House. Accurate and timely registration is crucial to avoid penalties and ensure transparency during the sale process.
  3. Financial Records: Provide comprehensive and transparent financial records to the buyer, including profit and loss statements, balance sheets, and cash flow forecasts. Make sure all financial documents are readily available and up to date.
  4. Contracts and Agreements: Have all your contracts, agreements, and other legal documents in order before selling your limited company, including employment contracts, supplier agreements, and lease documents. These documents play a vital role to ensure a seamless transfer of the company.

By following the procedures and maintaining accurate documentation, you’ll be well-prepared for the sale of your limited company with a bank account. Remember to consult with legal and accounting professionals to ensure compliance with relevant regulations and to minimise potential risks associated with the sale of limited companies.

Managing Staff during Company Sale

Employee Rights and Redundancies

During the sale of a limited company, it is crucial to ensure that your employees’ rights are protected. The Transfer of Undertakings Protection of Employment (TUPE) is a regulation put in place to safeguard employee rights when a business is sold to a new buyer. TUPE applies to employees of any sized business in the UK, even if the head office is in another country but the part being sold is in the UK.

It is your responsibility to inform your staff about any changes that may affect them, such as redundancies. In the event of redundancies, employees are entitled to a redundancy payment, which is based on the employee’s age, length of service, and weekly pay. You must consult with the affected employees and try to find suitable alternative employment within the company if possible.

Relocation and Other Packages

If the sale of the company involves relocating staff, it is essential to provide reasonable support and assistance. This may include offering financial packages, such as relocation allowances, to help employees settle into their new location. Some companies also provide assistance in finding new accommodation or new schools for employees’ children.

In addition to relocation packages, other benefits might be available to employees if their roles change due to the company sale. These benefits could include training opportunities, promotions, or improvement in working conditions. It is essential to communicate these changes and the potential benefits to employees clearly, ensuring they understand their options during the transition period.

Remember, providing accurate employee liability information to the new owner is crucial. This helps the new employer understand their responsibilities when staff have been transferred, ensuring a smooth and efficient handover.

Dealing with the Company Bank Account

When you’re selling a limited company, handling the company’s bank account is an important aspect to consider. Both the buyer and seller have responsibilities to ensure a smooth transaction. In this section, we’ll discuss how to close the old, personal bank account, and transfer the company bank account to the new owner.

Closing the Old Account

Before selling your limited company, it’s crucial to close any personal business bank accounts that are associated with the company. This will help prevent any confusion in the future and ensure that all financial records are kept separately from your personal business finances too.

To close the old account:

  1. Inform your bank of your intentions to sell the limited company.
  2. Settle any outstanding debts or transactions linked to the account.
  3. Ensure the account balance is zero, or transfer any remaining funds to the new business bank account.
  4. Follow your bank’s procedure for closing the account, which may involve submitting a written request or completing an online form.

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Remember to maintain accurate records same bank, throughout this process, as it’s essential to prove that the old account has been closed and any remaining funds have been transferred legally.

Transferring the Company Bank Account

When selling a limited company, transferring the company’s assets and bank account to the new owner is an essential step. It ensures that the new owner can access the company’s funds and continue its operations seamlessly.

To transfer the company bank savings account:

  1. Discuss with the buyer and agree on the terms of transferring the company bank account.
  2. Update the bank with the new owner’s details, including their name, address, and contact information.
  3. Provide the bank with any required documentation, such as the buyer’s proof of identity, the signed sales agreement, and the company’s updated registration details.
  4. Complete any necessary forms or procedures that your bank may require to transfer the account to the new owner.

In some cases, it might be more convenient for the buyer to open a new business bank account and transfer the company’s funds from the old business account to the new one. Whichever method you choose, ensure that all transactions are correctly documented and that both parties are aware of their responsibilities.

Finalising the Company Sale

Conducting a Final Review

Before you finalise the sale of your limited company, it’s essential to conduct a thorough review to ensure everything is in order. This process, known as due diligence, should involve examining various aspects of your business.

Firstly, review your company’s accounts, including its historic and projected financial performance. Make sure all your business accounts and financial records are accurate and up-to-date to avoid any complications during the sale.

Additionally, ensure that you have valuations for your company’s property and other assets. Assets such as equipment, inventory accounting software, and intellectual property must be accurately assessed to determine their worth.

Another critical step in the due diligence process is verifying your company’s legal and tax compliance. Check that all your organisational documents, contracts, and permits are current and complete. Address any pending legal action against your business to avoid potential issues with the buyer.

Moreover, review your major customer contracts to assure that your clients’ needs and expectations are consistently met. This will instil confidence in the buyer that your company has a reliable and loyal customer base.

Lastly, consider the tax implications of selling your company, such as Capital Gains Tax. The profit from the sale may be subject to tax, and you may need to pay tax on any assets or cash you retain from the sale. You might be eligible for tax reliefs, such as Business Asset Disposal Relief, which can reduce your Capital Gains Tax rate to 10% if you’ve owned the same business assets for at least two years.

Taking these steps to conduct a comprehensive final review will help ensure a smooth and successful sale of your limited company.

Frequently Asked Questions

What are the tax implications when selling a limited company with a bank account?

When you sell a limited company, you might face tax implications depending on how the transaction is structured. If the transaction is a share sale, the seller might be liable to pay Capital Gains Tax on any gain made during the sale. Nevertheless, you may qualify for Entrepreneur’s Relief, which could significantly reduce the tax rate. It’s important to consult a tax professional or accountant to navigate the tax implications of your specific situation.

How does cash in the bank affect the sale of a limited company?

Cash in the bank is considered an asset of the limited company and is included in the sale. It’s reasonable to use the cash in the bank to pay the company’s liabilities, such as payments to suppliers and HMRC (The HM Revenue & Customs). If you want to empty the bank into your pockets, that’s another matter and depends on what you’ve agreed with the buyer.

What is the process for transferring shares during a company sale?

When selling a limited company, the mode of transaction usually involves a share sale, wherein formal shareholders agreement before the owner sells the shares. If more than one owner exists, all of the shareholders will need to agree to the sale. The assets and liabilities of the business are held by the limited company; hence, when the shares of the limited company are sold, the assets and liabilities are transferred as part of the transaction.

Can a dormant limited company be sold with its bank account?

Yes, a dormant limited company can be sold along with its bank account. A dormant company is a company that has not traded or received any income for a specified period. Selling a dormant company follows the same process as selling an active one. It involves the transfer of shares and assets, including the bank account.

How do I value my company when selling it?

There are different ways to value a company when selling it. Some common methods include the asset-based valuation method, discounted cash-flow method, and using a multiple of earnings method. It’s essential to consider factors such as the business’s industry, size, financial position, and growth potential. Consult a professional adviser, such as a business broker or accountant, to help you determine the best valuation method for your specific situation.

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Disclaimer: This document has been prepared for informational purposes only and should not be construed as legal or financial advice. You should always seek independent professional advice and not rely on the content of this document as every individual circumstance is unique. Additionally, this document is not intended to prejudge the legal, financial or tax position of any person.

Disclaimer: This document has been prepared for informational purposes only and should not be construed as legal or financial advice. You should always seek independent professional advice and not rely on the content of this document as every individual circumstance is unique. Additionally, this document is not intended to prejudge the legal, financial or tax position of any person.

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Get the specialist support you need

Whether you require specialised knowledge for your business or personal affairs, Gaffney Zoppi can support you.