Purchasing and selling businesses

Buying or selling a business can be at least as stressful as buying or selling a house. In fact, it is often more stressful because, for the seller,  because a business is a “living thing” that still needs to be managed and run whilst having to find the additional time to deal with professional advisors and supply information in response to seemingly never ending requests from the buyer and their professional advisors.

Many business owners  don’t  wish to let staff, customers and suppliers know what’s going on, which can also  mean working a lot of extra hours, outside of your normal working day in order to keep dealings private and avoid worry.

For a buyer, many of these stresses are the same, especially if they are themselves already in business and not a “first-time investor”.

For both parties, the process is a mixture of information sharing, negotiation, money issues, tax considerations, legal documentation and operational/project management. Each party will have its own perspective on the deal, despite the fact that they are both looking at the same outcome: the effective transfer of the business as a going concern for a reasonable price, with realistic terms.

Apart from the transfer of a franchised business, which has special features of its own, due to the close involvement of the franchiser, the  two main types of business sale and purchase are:

  • An asset sale and a share sale
  • Our focus here is to identify the main legal documents that might feature, between the two parties, as the process develops.

  • Commercial confidentiality/non-disclosure agreement. To provide a framework within which the parties can exchange information and conduct negotiations: this might be coupled with….

  • A “lockout” agreement, or exclusivity agreement under which the seller agrees not to negotiate with anyone other than the buyer for a defined period of time (or until the buyer pulls out): after which….
  • An initial Heads of Terms (HoT) would normally be prepared by setting out the main commercial terms agreed and acting as a summary of the main points to be covered in the formal contract. The heads of terms would normally not be legally binding, although it may contain elements that are: this then leads to the….
  • Due diligence exercise, in which the buyer and their professional advisors carry out through checks and enquiries of the seller to get as clear an understanding as they can about what is really happening within the business: this might reveal information which will lead to a renegotiation of the deal and…
  • Revision of the HoT; after which the lawyers will negotiate….
  • The sale and purchase agreement, which, once signed, will be the legally binding contract between the parties setting out their expectations  and responsibilities toward each other; followed by….
  • Completion of the transaction  Once the appropriate transfer documentation is delivered, sales usually happen relatively quickly. For example,  a house sale and purchase can be completed on the same day as exchange of contracts but is often a few days or weeks (occasionally months) later. However, in most cases, there will be…
  • Post completion steps to be undertaken: for example, the registration of the asset or share transfers, and the subsequent notifications to the relevant authorities confirming the change of ownership.

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