Buying and Selling a Business

Buying and Selling a Business

Whether you are buying or selling, the structure and timing of a business deal will hinge upon a number of important factors and it is often integral to the success of a transaction that early advice is sought. This article  on Buying and Selling a Business aims to guide you through some of the most important steps to consider as part of the overall deal. And discusses some of the more common questions we come across.

Structuring a deal

Before any terms can be agreed, it is vital to consider whether the proposed transaction should proceed as an “asset-only” deal, or by way of a “share sale and acquisition”.

If the seller operates as a sole trader or partnership, then the only option available is an asset-only deal. However, if the seller trades as a limited company, an agreement may be made to sell the share capital in the company instead.  There are advantages and disadvantages to both. Depending on whether you are buying or selling, some of which are noted below:

Asset-only deal

The advantages, broadly speaking, are as follows:

Some disadvantages to this structure are as follows:

Share deal

In respect of a share deal, the advantages are as follows:

Some of the disadvantages are as follows:

Agreeing Terms

Once the structure of the deal is agreed, the parties must then consider any relevant or specific terms that need to be covered under the Contract and formal Heads of Terms are usually prepared.

The Heads of Terms should set out the basis of the agreement. It cannot be stressed enough how important it is to get these right before committing to the deal.

The Heads of Terms should deal with the main aspects of the business, such as:

Due Diligence

The due diligence stage of the transaction is typically the point where lawyers are instructed to draft and review the Contract. The buyer’s advisors will raise various enquiries and generally delve into the inner workings of the business. The due diligence phase will mainly consist of lawyers reviewing legal paperwork. With the financial advisors reviewing the business accounts and advising on any tax implications.

For the buyer, the due diligence stage is the most crucial element of the transaction. It is often where you get to understand how the business actually operates and uncovers any issues that need to be addressed. Such issues may be important enough to provoke a review of the price being paid. Or whether or not the matter proceeds at all.

A seller will need to engage fully in the process. They can help expedite the matter by gathering all relevant paperwork and information up front. And generally responding swiftly to any enquiries raised. The seller will want to ensure that as much information is provided as possible. So as to limit the possibility of any claims being made under the warranties they provide to the buyer in the Contract.

The due diligence process is therefore a two-way street and the extent of it will vary on each transaction. However, typical disclosures made by the seller during the process will generally include information about:

There may also be information which is business-specific and therefore requiring a more thorough evaluation.

Common issues

Every transaction will have its own nuances but the below highlights some of the more common problems we come across:

By being aware of these issues you can plan accordingly to assist with the smooth running of the matter.

Next steps

Hart Reade Solicitors are a full-service law firm with offices in offices in Eastbourne, Hailsham, Polegate and Meads.  We hold a both a Lexcel and Conveyancing Quality Accreditation from the Law Society of England and Wales.  To make an appointment with one of our business law Solicitors, please phone our office on 01323 727 321.

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Please note, this article does not constitute legal advice and its content may be subject to modification depending on any changes in the law.