Below are some alternatives which may be used to improve the sentence by replacing the word in bold/ bracketed . You may choose option 1, 2, or 3. In case 'No Improvement' is needed, choose 4.
There lived a black sheep in a nearby village and every spring, he shaved his black wool and sold it to the townspeople.
1
sold it to the sheep.
2
sold it to the citizens.
3
sold it to the villagers.
4
No improvement.