CALL US ON 08456 800 727

Although a business and/or assets could be acquired on the basis of an invoice, we recommend that the parties enter into a Business Purchase Agreement.

Not only does this agreement clearly set out what assets are to form part of the sale, it affords the buyer greater assurance that those assets include all the assets required to run the business. In addition, certain assets require a formal transfer, such as intellectual property and customer contracts.

The agreement can also identify the obligations and responsibilities of each party in relation to the acquisition, for example who is responsible for the collection of debts and ensuring that the assets are insured. All this ultimately reduces the risk of a dispute further down the line.

The first draft of the Business Purchase Agreement is usually prepared by the buyer's solicitors and includes the following provisions:

  1. Assets Being Transferred

    One of the benefits of acquiring a business is the opportunity for the buyer to "cherry pick" the assets it wants to acquire. This can mean that certain liabilities linked to the business can be left with the seller. Therefore, it is important to set out clearly what is, and isn’t, being transferred.

    However, care should be taken to ensure that, wherever possible, the business acquisition is structured so that it is a "transfer of a going concern", meaning the seller does not have to charge VAT on the sale.

  2. Asset Transfer

    In order to transfer the ownership of certain assets, additional documentation may be required. For example, goodwill and intellectual property will need to be transferred by way of a separate deed of assignment document and property will be subject to a separate transfer document.

    It is therefore important for the buyer to ensure that all relevant documentation is in agreed form and that the seller is obliged to enter into such documentation upon completion of the transaction.

    However, other assets will be transferable by physical delivery and so the agreement will also need to set out the time and place for such delivery.

  3. Purchase Price

    The purchase price the buyer is to pay for the business will be set out in the agreement, together with the timing for payment and any conditions attached to payment.

    Where the purchase price has been calculated on the basis of information in previous accounts of the business, completion accounts may be used to allow for a more accurate calculation of the purchase price.

    For further guidance on consideration in an asset purchase, see A Buyer's Guide to Structuring the Purchase Price.

  4. Restrictive Covenants

    As a buyer of a business, a key concern will be to ensure that the seller of the business does not attempt to compete with or damage the goodwill of the business post-completion.

    In order to achieve this, restrictive covenants can be put in place, requiring the seller to refrain from being involved in a competing business for a period of time post-completion. It is also usual to restrict the seller from poaching suppliers, customers and employees from the target business and from disclosing confidential information about the business.

    However, it is important to ensure that these restrictions are reasonable and do not amount to a restraint of trade, making them unenforceable.

    In certain circumstances it is possible to tie in the shareholders of the business to the restrictive covenants by making the shareholders of the seller (in the case of a company) a party to the agreement.

  5. TUPE

    Where employees are engaged (or materially engaged) in the target business, the Transfer of Undertakings (Protection of Employees) Regulations 2006 ("TUPE") will apply to the transfer. In essence, this means that any such employees are transferred automatically to the buyer upon completion.

    Although it is not possible for the buyer and seller to contract out of the provisions of TUPE, individual employees can choose not to transfer their employment to the buyer. In addition, a buyer can mitigate the effect of TUPE if the seller agrees to be responsible for any liabilities arising in connection with the transferring employees by giving an appropriate indemnity.

    There are certain obligations imposed on both the buyer and the seller by virtue of TUPE and so it is important that this is dealt with in the business purchase agreement and, where deemed necessary, appropriate indemnities sought.

    It is possible that employees are inadvertently transferred as a result of TUPE if, for instance, limited assets are transferred to a buyer.

  6. Warranties & Indemnities

    Warranties are statements made by the seller in the business purchase agreement regarding the business and the assets transferring to the buyer.

    They reduce a buyer's level of risk on a business acquisition by allowing a buyer to potentially claim damages for a breach of warranty should any of the statements made by the seller prove to be inaccurate.

    The warranties also act as an information-gathering mechanism due to the seller "disclosing" any issues that go against the warranties given.

    Whilst it is advantageous to the buyer to make the warranties as extensive as possible, given the level to which warranties will usually be negotiated and the consequential disclosure exercise, a seller may look to limit the warranties in order to keep costs down. This may be of particular relevance where the transaction value is low or where the buyer perceives there to be a low level of risk in acquiring the business.

    If there are particular potential liabilities that are of key concern to the buyer, an indemnity may be sought from the seller requiring the seller to repay the buyer, pound for pound, the amount of any loss the buyer suffers as result of the specified liability. The extent to which these are acceptable to the seller will depend on the bargaining position of the parties.

  7. Limitation of Seller's Liability

    Whilst the seller may be willing to provide warranties in favour of the buyer, the seller is likely to require its liability arising in respect of the warranties to be limited.

    This is a reasonable request although the extent to which liability of the seller is limited will be subject to negotiation.

    It is usual for there to be a financial limitation, as well as a limitation in terms of the time in which a warranty claim can be brought.

  8. Conditions Precedent

    There may be a reason why completion of the transaction cannot happen at the same time as exchange.

    This may be due to shareholder approval being required or another third party consent being needed that cannot be sought until after an agreement to purchase is in place.

    In such a case, there will be a split exchange and completion and the buyer will need to ensure that this does not affect the value of the business.

    In order to minimise such a risk, certain protections can be sought in the business purchase agreement in relation to how the business must be run during this time.


The information provided on this website is intended as a general guide only. It is not exhaustive or tailored to your individual circumstances. Please consult our Website Terms of Use for further information.


Helpful Information

About Legal Clarity


View details of our service here.


View details of our service here.

Free Company Name Check

Is your choice of company name available?

Click here to check.

© 2019 Legal Clarity Limited: Corporate & Commercial Legal Services - Company Formation - Company Secretarial Registered in England and Wales (number 6452925) and authorised and regulated by the Solicitors Regulation Authority (SRA number 573589). 1st Floor, Charles House, 148-149 Gt Charles Street, Birmingham, B3 3HT. Tel: 08456 800 727. VAT registration number 925709016.