The Power of Disclosure: Protecting Yourself in a Business Sale

When selling a business, it may be tempting to avoid disclosing information which may not be so appealing to your buyer. Although it may feel counter intuitive but disclosing information can actually limit your liability and protect your interest as opposed to hoping that your buyer never finds out.

Throughout the sales process, enquiries will be raised and you will need to provide information about your business. This in turn will influence any warranties (essentially, promises you are making about particular elements of the company) that are included in the contract for sale. Your solicitor should seek to negotiate a reduction in warranties or at the very least some amendments to limit your liability to a reasonable standard. This is important because a breach of warranty can result in a claim!

You can and should take this limitation a step further by providing a disclosure letter. This may sound technical but it is very simple and a great tool in protecting yourself from a claim.

A disclosure letter in an opportunity for you to provide additional information about the business. It gives both you and the buyer a clear picture of the state of the business. The information you provide will relate to the warranties and should include any reason why you cannot provide these statement of fact about the business. By disclosing this information a buyer cannot then bring a claim for breach of warranty in connection with the information you have already provided. 

Transparency is fundamental when selling a business, be it with your solicitor is so that the contract, warranties and disclosure letter can all be prepared to provide you with the best protection possible, or with your buyer (under the advice of your solicitor).

Disclosure reduces the chances of disputes down the line and provides you with peace of mind following completion. Your solicitor will be able to walk you through the process and provide you with advice and support when providing the information to make the required disclosures.