Whether you are buying or selling a business, it will probably be one of the biggest financial decisions you will make in your life!
That’s why it is so important to instruct a solicitor with the right expertise.
The corporate & commercial team at Prosperity Law will not only ensure that you and your business effectively manage all risk factors and that all of the formalities of the transfer of the business are complied in a timely manner, but we will also be here to guide you through your sale or purchase – we are always available to answer your questions, explain the steps involved, and we will always fight your corner.
We have vast experience dealing with sales and purchases on behalf of individuals, franchises, partnerships and corporate bodies of all sizes. We pride ourselves on our short response times and quick turnaround of documents, whilst providing you with tailored expert advice on all aspects of the transaction.
Important Things to Consider When Buying or Selling a Business
Heads of Terms
This is essentially an agreement to agree and is not always necessary in business transactions. The sale of the business will still be ‘subject to contract’ and so until all of the specifics are agreed in the sale agreement – there is still a chance the deal will fall through. If there is a holding deposit we would recommend appropriate documentation in place setting out the terms under which the deposit was paid and will be repaid. Sometimes Heads of Terms are agreed upon where there is an exclusivity period for the buyer to complete.
We can negotiate the Heads of Terms for you, but we are often instructed after those terms have already been agreed (in which case we will make sure that the final agreement reflects what was agreed in the heads of terms).
Due Diligence
It is vital to know exactly what you are purchasing and what the risks to you will be once the transaction completes. We will carry out a thorough review of the target business’s replies to our due diligence enquiries and report to you. We will persist with any concerns to make sure that there are no nasty surprises on day one, and where a risk cannot be avoided we will negotiate suitable legal protection for you (indemnities, warranties, etc).
For sellers, we will ensure that the buyer’s enquiries are dealt with as quickly as possible, with complete and applicable responses. The due diligence process can take many months to complete, we will carefully manage the process to ensure no time is wasted – there may be exclusivity periods running out, and the buyer’s funding will only have a limited time to draw down the loan.
We will also work with your accountant to ensure accurate financial and accounts information is provided and for sellers we will help you prepare for completion accounts (for company sales).
Managing Risk
We will ensure that buyers are protected from specific risks that come to light in the due diligence process and from the risks to be expected at a business of the target’s nature. For sellers, we will negotiate with the buyer’s solicitor to ensure the minimum possible exposure for our client, whilst ensuring the deal does complete and minimise any delays.
Warranties will be provided by the seller and an opportunity to disclose against the warranties within a disclosure letter. Indemnities can also be negotiated for specific identified risks.
For company sales we will also work with your accountant to consider tax warranties and covenants.
Contracts
Contracts held by a company will automatically transfer to the buyer with a sale of shares – the company is the contract holder before the sale and the company is the contract holder after the sale, it is the ownership of the company that changes hands. In these situations, we must carefully check the terms of the contract to ensure we comply with any requirement to notify the area team of a change in control of the company.
In asset transactions the buyer may be able to pick and choose which contracts are required, we will carry out a full analysis of the business’s contracts and termination provisions in order to negotiate with the other party.
Employees – TUPE
In a share sale we would normally expect that all staff members are correctly employed by the company, so when the company is sold, there will be no change for the staff or associates. We will review the contractual position during the due diligence process and report to our client on key issues.
However, for asset sales of a business (whether by a company or an individual) the employees will be engaged by the seller and they will need to be transferred to the buyer.
Employed staff will transfer automatically (unless they opt out) to the buyer under TUPE. We advise our buying and selling clients very carefully in this regard to ensure staff members are treated correctly and fairly and the regulations are properly complied with.
Some buyers may also wish to retain the seller for a period of time. This can simply be to ensure a smoother transition of the business or to protect the goodwill. We can discuss deferring part of the purchase price so that it is only payable if the business maintains turnover levels.
Property
Most businesses require premises from which they operate and so pretty much every business transaction will have a property element to it. Whether you will be buying (or selling) a freehold property, assigning a lease or taking a new lease from the landlord – we can deal with all of this for you.
Some sellers may own the freehold property, but exclude it from the sale. Instead, they will agree on a new lease of the premises with the buyer and keep the property as a tenanted investment property. Other sellers may hold the property in a SIPP – again, we will deal with all aspects of the property transaction and coordinate it with the transfer of the business.
Of course there are many more elements to a business sale and purchase, and every transaction is different in some way. We have acted across a wide range of industries, with a strong focus on healthcare businesses. However, we have also acted on substantial transactions in the construction industry and a host of others from retail to professional services.
If you require any advice or assistance in relation to the above please contact our Head of Corporate & Commercial, Paul Edels at paul@prosperitylaw.com or on 0151 958 0057.
