How to Structure a Business to Sell It — Preparing Your Company for Acquisition (2026)

Why Structure Matters for Exit Value

A buyer acquiring your company looks at three things beyond revenue/EBITDA: 1. Clean title — can they acquire the company cleanly, without hidden liabilities or disputes? 2. IP ownership — does the company clearly own all its IP (code, brand, contracts, customer data)? 3. Management independence — could the business operate without the founder? (Reduces risk premium)

• Structural problems that kill deals or reduce price:
• IP that was developed personally and never properly transferred
• Key contracts in the founder's personal name
• Tax compliance issues (missing filings, CT debts)
• Messy shareholding (promised-but-never-issued shares, undocumented sweat equity)
• Personal expenses run through the company (raises due diligence red flags)

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Building a Clean Share Structure

• From day one:
• Issue shares formally (Companies House SH01 form for new share issuances)
• Document any agreements to issue future shares in writing (option agreements, convertible notes)
• Keep a share register updated
• If co-founders have different contribution timelines, use vesting — shares vest over 4 years with a 1-year cliff (standard Silicon Valley structure, increasingly used in UK)

• Avoiding cap table problems:
• Never verbally promise equity without documentation
• Departing co-founders: use good leaver/bad leaver provisions in the shareholders' agreement
• If someone contributed work early and you want to "give them shares" — use an EMI (Enterprise Management Incentive) option scheme or a properly documented share award

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IP Ownership: The Most Common Due Diligence Red Flag

• The company must own all IP that is central to its value:
• Code: If you wrote the code before the company existed, formally assign it to the company via an IP Assignment Agreement (simple document, signed and dated)
• Brand: Trade mark should be registered in the company's name, not yours
• Domain names: Domain registration should be in the company's name or formally licensed to the company
• Customer data: The company must be the data controller (ICO registration for UK companies)
• Employment contracts / contractor agreements: Must include IP assignment clauses — any IP created by employees or contractors is assigned to the company

Buyers will request proof of IP ownership during due diligence. Missing documentation = price chip or deal collapse.

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Tax Optimisation: Share Sale vs Asset Sale

• Share sale (buyer acquires your shares in the company):
• For the seller: CGT on the gain (shares held > 2 years in a qualifying trading company → potentially 10% BADR rate on first £1M of gain)
• For the buyer: inherits all historical liabilities of the company (risk)

• Asset sale (buyer acquires specific assets of the company):
• For the seller: CT on the gain within the company, then dividend/capital distribution to extract — potentially double tax
• For the buyer: clean acquisition of specific assets (preferred by buyers with risk concerns)

Most founders prefer a share sale. Most trade buyers prefer an asset sale. Negotiation is normal. The compromise: warranties and indemnities from the seller in a share purchase agreement give the buyer contractual protection against historical liabilities.

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Business Asset Disposal Relief (UK)

• Conditions to qualify for 10% CGT rate on share sale (first £1M lifetime gains):
• You owned at least 5% of the ordinary share capital throughout the 2 years before the sale
• The company was a trading company (or holding company of a trading group) throughout those 2 years
• You were an officer or employee of the company throughout those 2 years
• You must personally own the shares (not through a trust or pension)

Post-October 2024 Budget changes: The BADR lifetime limit remained at £1M. The BADR rate increased from 10% to 14% from April 2025, and is planned to increase to 18% from April 2026. Check current rates.

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FAQs

How early should I start preparing for an exit? Ideally, from formation. But realistically: start seriously 18–24 months before your target exit date. It takes time to clean up IP assignments, resolve any cap table issues, and build 2 years of audited accounts (some buyers require this).

Does it help to have audited accounts? Most trade buyers and all PE firms will require at least 2–3 years of audited (or at minimum accountant-prepared) financial statements. Having audited accounts from year 1 is unusual for small companies but signals seriousness to buyers. Minimum: management accounts up to date, with the last 2 years reviewed by an accountant.

What is an earn-out? A deferred portion of the purchase price that is paid based on future performance. Common in acquisitions where the buyer and seller disagree on valuation — the seller gets their headline number only if certain revenue or EBITDA targets are met post-acquisition. Negotiate carefully: earn-outs can be difficult to achieve if you're no longer in full control.

Should I retain a corporate lawyer for an M&A deal? Yes. No exceptions. The sale of a company involves a Share Purchase Agreement (SPA) that is 50–200+ pages of legal protections, warranties, indemnities, and conditions. Do not use a generic solicitor. Use a corporate lawyer experienced in M&A (minimum 5+ deals). Legal fees for a small acquisition (£500K–£5M): £15,000–50,000. This is not optional.