How do I buy or sell a business?

Andrew Bradley looks at some of the basics of buying and selling a business from a limited company. If you have any questions on this note or require advice on any other business matter please email Andrew at andrew@bradleyhayneslaw.co.uk or call 01905 900919.

How can I buy or sell a business?

There are generally two main ways to buy or sell a business that is run in a limited company – either an ‘asset sale’ or ‘share sale’.

What main things do I need to consider when deciding how to buy and sell a business or a company?

In an asset sale, the buyer will acquire the business and certain assets of the company and is often able to “cherry pick” which assets and liabilities to take on or leave behind.

With a share sale, the Buyer will usually acquire all assets and liabilities of the Company as a whole.

Tax is usually a key consideration when deciding between an asset sale or share sale as different taxes apply to each type of sale.  For sellers it is usually preferable to sell the shares as tax incentives such as Entrepreneurs Relief will commonly benefit them, however this is a position that should always be considered with an accountant.

In a share sale, employees will remain employed by the Company and their contracts remain unaffected. With an asset sale it is likely that the employees of the business will automatically transfer to the Buyer under TUPE regulations, on the same terms are they are employed by the Seller.  There are however many complexities around TUPE if only certain assets are being acquired and professional advice is always recommended in this area as employment claims are fairly easy to bring and can be expensive to resolve.

What is the sale process?

Larger transactions will tend to start with heads of terms, which are usually not legally binding but guide negotiations.  There will sometimes be binding clauses on matters such as confidentiality to protect the seller from misuse of commercially sensitive information supplied by the seller to the buyer.

The buyer and seller will then usually proceed to some form of due diligence, where the buyer reviews the overall status of the company.  The buyer will be looking at many issues, including matters such as:

• issues with key commercial contracts;
• contracts with key employees;
• outstanding litigation or issues with employees, suppliers or customers;
• the condition of assets such as machinery and business’s IT;
• checking licenses are up-to-date and in place;
• environmental and property issues;
• checking accounting practices and tax compliance.

If you wish to sell a business it is wise to start dealing with such issues long before the acquisition process, as major issues in these areas could result in the deal not proceeding, or the buyer looking to reduce the price or place very onerous provisions into the contract.

If you are buying a business, then the role of your lawyers in due diligence is a critical one.  It is vital information is reviewed with an eye for detail and a key commercial understanding of potential issues that may be suffered by the buyer after completion.

Once the buyer is ready to proceed, the buyer and seller will proceed to agree the contract and various other documents such as disclosure letters and ancillary documents.  It is vital to take professional advice on this element whether you are a buyer or seller, as the devil is always in the detail!  For a buyer, you will be looking for remedy if you have been misled on issues that are discovered after completion.  For the seller you will be looking to effectively disclose all issues, so you limit the likelihood that you are pursued for financial remedy in the future.  The seller should also be looking to ensure there are fair and balanced limitations on any claims they may face.

There are often significant risks when buying or selling a business and we can add significant value to our clients in the process.  If you have any questions on this note or require advice on any other business matter please email Andrew Bradley on andrew@bradleyhayneslaw.co.uk or call 01905 900 919.