Sale or Purchase of a Business

Buying or selling a business can be highly complex and requires a specialist solicitor to ensure that all legal issues are addressed correctly. Any buyer or seller of a business should take legal advice at the outset of any acquisition or sale, consulting expert company and commercial law solicitors to ensure all legal obligations are met.

Buying and selling a business: acquisition types

There are two main types of business purchase:

1. Asset

The buyer agrees with seller which assets and liabilities they purchase. Through an asset purchase agreement, the buyer negotiates terms with the current owner over which assets are sold and purchased and which are not. These assets can be physical like machinery or property, or intangible like intellectual property.

2. Share

The buyer purchases shares in a company from the seller. Once you have bought someone’s shares, you become the owner of all the rights associated with those shares.

An asset purchase can usually be more straightforward and faster from a legal perspective, while also providing flexibility in what they buy or sell. There are tax advantages to consider with either option but a share sale has the additional advantage of having more business stability.

These are not the only ways in which you can buy or sell a business. Management and leveraged buy outs are options, as well as conglomerate acquisitions amongst others options.

Legal considerations for buying a business

Like buying a property, there are many legal considerations when purchasing a business – whether in whole or in part:

Warranties

Warranties protect the buyer by providing a legal basis to claim compensation in a situation where the business doesn’t meet the stated and agreed conditions.

Indemnities

Indemnities are promises by the seller to compensate the buyer for losses or damages that take place after the sale, providing a safety net for the buyer against potential financial risks.

Employees

The buyer must ensure compliance with labour laws, understand any obligations to employee contracts, and avoid liabilities like unpaid wages, benefits, or redundancy costs.

Cost/Price

The price must be based on a thorough and fair valuation, and the terms of payment clearly defined. The buyer must understand the payment structures, earn-outs and adjustments applicable based on future performance.

Restrictions

Restrictions (non-compete clauses, confidentiality agreements, NDAs and others) may be in place to protect the buyer from direct competition by the seller and to ensure that sensitive business information stays confidential.

Partnership Agreements

If you are purchasing a business partnership or a share of a partnership, it’s crucial to understand any existing agreements within it, and any implications of the sale and purchase on the remaining partners.

Asset/Share Purchase Agreement

Business purchase agreements outline the terms and conditions of the sale and purchase, including purchase price details, payment terms, asset transfer, liabilities, warranties, indemnities, and any other conditions relevant to the sale and purchase. It binds both parties legally and remains as a reference in the event of disputes.

Stamp duty

Stamp duty is a tax paid on the transfer of assets or property. It must be accurately calculated and paid to avoid legal penalties. Understanding it fully can save money for both buyer and seller.

Contact our business purchase solicitors today.

Selling a business

From a seller perspective, asset and share sales look different:

1.Asset

Whether the seller is a company or an individual, the seller will have to consider  all the warranties, indemnities, conditions and guarantees requested by a buyer carefully to limit their post-sale liability. The seller can retain parts of value and sell them at a later point. The buyer can pick the assets they desire to acquire, but the seller will still be legally obligated to pay existing liabilities and debts unless they are also transferred to the buyer.

2.Share

Share sales may be easier for the seller, as all that is being sold are the sellers shares in the company and the buyer acquires the share of the company with all its strengths and flaws.

Consequently, the buyer will likely expect extensive warranties, indemnities, conditions and other guarantees that protect their legal interests.

Legal considerations for selling and buying a business

You want to make sure you’re getting a fair deal when buying or selling a business, while also considering the legal implications around ownership, staff and taxation.

Transfer of undertakings

Transfer of undertakings applies when a business changes owner, and its employees may be protected under the Transfer of Undertakings (Protection of Employment) – also known as TUPE. It ensures that contracts of employment are retained when they transfer from one employer to another.

Non-disclosure agreements (NDAs)

NDAs protect sensitive information from being shared during the sales process, ensuring that potential buyers don’t disclose confidential business information. This protects seller and buyer business interests.

Due diligence

Due diligence is a thorough investigation by the buyer into the business being sold. Detailed preparation by the seller facilitates trust and builds a better relationship between the two parties. It also helps the seller identify and address potential issues before the sale goes through.

Contracts and other legal documents

Contracts govern the terms of the sale and outline the rights and obligations of both parties. Well-drafted contracts protect both parties interests, define terms clearly, and establish a legal foundation for resolving future disputes.

How Crombie Wilkinson can help with your commercial transaction

Crombie Wilkinson Solicitors offers team of commercial lawyers can provide expert advice and guidance on buying and selling businesses.

When buying or selling a business, it’s easy to overlook the finer points. An expert solicitor can enhance the process, ensuring the sale is efficient, streamlined, and fair to both parties. With professional assistance, you will receive the best deal possible and avoid disputes.

Talk to Ian Barnard, Director and Head of the Company Law Team or call us on:

to discuss your requirements when buying or selling a business.