How to plan your exit: selling your shares to a third party

Every business owner will one day exit their company – the only question is when and how. Whether your goal is to retire, realise the value you’ve built, or pass the business on, your decisions will shape the outcome for you, your family, and your employees.

Having worked closely with business owners navigating this journey, I’ve partnered with legal specialists Stephens Scown to create this four-part series, “How to Plan Your Exit: 4 Smart Strategies for Business Owners.”

This is the second article in the series. It examines selling shares to an external buyer, a common way for owners to unlock value and hand the business over to a new generation of owners.

Exiting your business: selling shares to a third party

A third-party sale is where an external buyer acquires all or, sometimes, just some of your shares. This is often a complete sale of the company, but can also be used to bring in an investor or allow some shareholders to exit while others remain involved.

This route is typically chosen when:

You are looking to retire or step back from the business.
You want to realise the value of your hard work.
You see an opportunity to bring new expertise or investment to take the business to the next level.

How the process works

Once a Buyer has been identified, a sale to a third party usually proceeds as follows:

Agree heads of terms: You and the buyer agree on the headline terms (price, timing, structure).
Due diligence: The buyer reviews your business in detail, from financial records to employment contracts, to understand precisely what they’re buying.
Share purchase agreement: A legally binding contract covering the purchase price, warranties, indemnities, and any conditions is negotiated and drafted.
Disclosure letter: You disclose anything that might affect the warranties to protect yourself from future claims.
Completion: Once documents are signed and dated, ownership formally transfers.

Getting organised early – having your records in good order and engaging advisers at the outset – makes the process smoother and avoids last-minute delays or the risk of the transaction aborting part way through..

Tax perspective – planning ahead

Most business owners will pay Capital Gains Tax (CGT) on the profit from selling their shares. Planning ahead can make a big difference:

Business Asset Disposal Relief (BADR): If you qualify, gains up to £1m can be taxed at a reduced rate.
Spouse or civil partner planning: Transferring shares before a sale can help maximise available reliefs.
Deal structure: Consider whether you’ll receive cash, deferred payments, or shares in the acquiring company – and how these elements are taxed, and whether tax can be deferred.
Employment-related securities: Some consideration may be taxed as income if not structured carefully, leading to a higher tax bill.

If parts of the business or assets (like property) aren’t being sold, you may need to restructure before a sale, which can take time and require HMRC clearances. Early planning is essential to get this right.

Legal view – avoiding pitfalls

From a legal perspective, a sale transfers not just the assets of the business but all of its liabilities too. Buyers will expect protections in the form of:

Warranties and Indemnities: To give them comfort about what they are buying.
Restrictive Covenants: Ensure you don’t compete or poach staff after the sale.
Earnout Clauses: Linking part of the price to future business performance.

Dave Robbins, Corporate Associate at Stephens Scown, emphasises that preparation is key:

Having documentation in order, considering your disclosure obligations carefully, and protecting your confidential information with a Non-Disclosure Agreement before sharing data.

My view

Selling to a third party can be one of the most rewarding exit routes – but it is also one of the most involved. It requires careful planning to ensure you receive full value, minimise your tax liability, and protect yourself from future risk.

At Bishop Fleming, we work closely with legal specialists like Stephens Scown to prepare business owners well ahead of time, navigate due diligence and negotiations, and structure deals that deliver the right outcome for you.

If you’re considering selling in the next few years, now is the time to start preparing. This will allow you to control the process and secure the best result for your business and your future.