Selling your shares in a small or medium-sized enterprise (SME) is an important decision that often marks a new stage in your business journey. This process can involve a range of legal and financial issues, so good preparation helps ensure a smooth and successful sale. Whether you are retiring, moving to a new project, or simply want to realise the value of your investment, it is important to approach the sale with care and the right professional support.
‘Selling your shares in an SME is not just about finding a buyer and agreeing a price. It is about understanding your rights, navigating any restrictions, and making sure you are protected throughout the process,’ says Alina Malova, Paralegal & Ukrainian Lawyer in the corporate and commercial team at QualitySolicitors Parkinson Wright. ‘With the right advice, you can achieve a sale that works both for you and for the business.’
Alina discusses the key legal steps and practical points to consider when selling shares, helping you make informed decisions and avoid common pitfalls.
Understanding your shareholder rights and obligations
Before selling your shares, it is important to understand your rights and obligations as a shareholder. Every company is governed by its own set of rules, which are normally set out in two key documents:
- Articles of association – the company’s rulebook, explaining how shares can be transferred, what approvals are needed, and any restrictions on buyers.
- Shareholder agreement – if one exists, it may contain additional rules, such as who you can sell to or how the price should be determined.
Our lawyers can review these documents and explain key points such as:
- Pre-emption rights – existing shareholders may have the first option to buy your shares before you approach external buyers.
- Permitted / non-permitted transferees – some companies restrict sales to competitors or to individuals outside the existing group.
- Valuation clauses – rules that set out how your shares should be valued.
- Board or shareholder approval – some companies require formal approval before a sale can take place.
For example, you may plan to sell to an external investor, but the articles might require board approval and give existing shareholders the right to match any offer. Reviewing everything early helps avoid delays or surprises later on.
Valuation of shares
Determining the value of your shares is a key step. Unlike public companies, SME shares are not traded on an exchange, so there is no set market price. Common valuation methods include:
- Asset-based approach – based on the company’s assets minus liabilities.
- Earnings-based approach – looks at profitability, often using a multiple of recent earnings.
- Market comparison approach – compares the business to similar companies that have recently been sold.
An independent valuation can help ensure the agreed price reflects the true worth of your shareholding, especially if the company’s documents require one or if there is disagreement about value.
Finding a buyer
Once you know your rights and have a sense of value, the next step is finding a buyer. Common options include:
- Internal buyers – other shareholders, directors, or employees. These sales can be simpler because the buyers already know the business.
- External buyers – investors, competitors, or businesses looking to expand.
When looking for a buyer, consider:
- professional networks and contacts,
- business brokers,
- online platforms for buying and selling businesses.
We can advise on any legal issues that might arise with different types of buyers. For example, selling to a competitor may raise confidentiality concerns, while selling to an employee might involve additional agreements about your ongoing role.
Legal and tax considerations
Selling shares usually involves several key documents and steps, including:
- a stock transfer form,
- updating the company’s statutory books,
- Companies House filings.
There are also important tax considerations. For example, you may be liable for Capital Gains Tax on any profit you make from the sale. However, reliefs such as Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) may reduce your tax bill if you meet certain conditions. It is always wise to seek advice from your accountant on the tax implications of your sale, as the rules can be complex and change frequently.
Negotiating the share sale agreement
The share sale agreement sets out the terms of the sale. Key points include:
- Price and payment terms – how much you will receive and when.
- Representations and warranties – statements about the company and your shares. If any turn out to be incorrect, the buyer may seek compensation.
- Indemnities – promises to compensate the buyer for certain risks after completion.
A clear, well-drafted agreement helps protect your interests and reduce the risk of future disputes. For example, if payments are staged over time, you will want to be sure you are protected until all funds have been received. Our lawyers can draft and negotiate the agreement and explain each part of it.
How we can help
Our corporate team can support you throughout the process by:
- reviewing the company’s articles and shareholder agreement,
- advising on legal issues linked to internal and external buyers,
- drafting the required legal documents,
- handling statutory records and Companies House filings,
- and guiding you at each stage to ensure you feel informed and confident.
Selling your shares in an SME is a major decision, but with the right legal guidance it can be a straightforward and positive experience. If you are considering a sale, we are here to help you achieve the best outcome.
For an informal conversation about selling your company shares, please contact Alina Malova or a member of our corporate and commercial team on 01905 721600 or via email worcester@parkinsonwright.co.uk
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.