Buying a business solicitors

Buying a business is exciting but can be complicated. This is where we step in! At Legal Clarity, we have extensive experience in helping individuals and companies purchase businesses, where we not only help you navigate the complexities of buying a business but help minimise them as well.

How to buy a business

Buying a business requires thorough research and a strong understanding of what you’re looking to achieve. Here are a few things you need to know before buying a business.

Thoroughly prepare for buying a business

Preparing for the purchase of a business requires lots of research and reflection on the type of business you want to buy, what you want to achieve and the budget and funds you have to facilitate this purchase. 

A heads of terms document will later be drawn up to set out the basics and confidentiality of your purchase. The agenda of the purchase, alongside any timescales, will also need to be outlined in this document. At Legal Clarity we can support you in creating these, ensuring they comply with the latest rules and regulations and have reasonable terms.

buying a business

What to negotiate

When purchasing a business, it’s important to negotiate the key terms of the transaction at the outset. Some things you may want to negotiate include:
  • Any warranties regarding the state of the business - You may want to negotiate that steps are put in place to recover consideration in the event of the sellers not owning what they’ve sold.
  • Withholding part of the purchase price - It can be negotiated that part of the purchase price is retained during the warranty period. This is known as a retention.
  • Any indemnities relating to the business's known liabilities - This stipulates that you must know before the transaction is completed of any substantial or potential liabilities of the business. 
  • A price reduction - It’s common that the price of a business sale is negotiated and will often involve the details of the business being disclosed during this period. 
  • Practicalities - This refers to any purchase mechanics, assistance with handover or access to websites, client databases and social media accounts. 
  • Putting restrictive covenants in place - This essentially prevents the seller opening another business in competition with the one they have sold. Without a restrictive covenant the seller can compete, leading to potential harm in regards to your investment in the company.

The importance of warranties

Warranties are legal statements about a business provided by the seller to the buyer. Without securing adequate warranties, the buyer will be left exposed and might not be able to recover losses after completion. Warranties usually cover:

Assets, including plant and machinery and intellectual property.
  • Accounts.
  • Liabilities.
  • Commercial contracts.
  • Employees.
  • Tax.
  • Property.
Warranty negotiations will also include:
  • Facts - The seller will want to be careful about what is and isn’t included in warranties.
  • Caps and limitations - These will be placed on how much buyers can claim under warranties. Buyers should negotiate any caps or limits on the warranties to push them back as much as possible. 
  • Time - This will stipulate how long the warranties will last for.
  • Outcome - What happens in the event of the warranty being breached.

Types of business acquisitions 

There are two types of acquisitions:

  • Share purchase - This involves buying shares in a company which will include the assets and liabilities from both the past and present of the company being acquired. The company’s business contracts may include change of control provisions which need to be considered during the due diligence process as they could stipulate a termination of the contract. There will be extensive warranties and indemnities put in place to cover the risk taken on by the buyer for acquiring both assets and liabilities of the company.
  • Asset purchase - This is where some of the business assets are purchased and usually most of the liabilities are excluded. This means that the buyer purchases the assets it wants and leaves behind the ones it doesn't need. It’s important that warranties are secured on an asset purchase to ensure that all the assets the buyer thinks it is acquiring, are acquired. However, in some cases, full scale warranties aren’t practical and the acquisition price can be reduced to reflect the buyer's risk. 

At Legal Clarity, we can help you identify the type of acquisition that’s right for you. 

Do I have to keep staff when buying a business? 

If you purchase a business with employees you will need to understand and deal with employment law and the implications of the Transfer of Undertakings Regulations (TUPE). You will also need to consider:

  • Reviewing existing employee contracts.
  • Reviewing restrictive covenants.
  • Managing redundancies or reorganisations.
  • Introducing employee incentives.

Key documents and legalities you should know when buying a business:

  • Heads of agreement - This sets out the basic framework of the deal.
  • Due diligence - This is where data and information is collected and analysed to make an informed decision as to whether to proceed with the transaction or not.
  • The sale and purchase agreement - This is the formal agreement of the deal which will transfer the assets being acquired.
  • Negotiations on warranties, indemnities and deferred consideration.
  • Employment law considerations, such as stating whether directors or senior employees are required to stay in the business and if non-compete regulations are put in place. TUPE issues which the employees will also need to be made aware of.
  • Any commercial property aspects of the transaction - This could include land or buildings.
  • A disclosure letter which will reduce the risks of warranty claims for the sellers.
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Questions to ask when buying a business

When purchasing a business there are a range of questions you should ask, such as:

  • Why are you selling the business?
  • Is this a financially viable business?
  • Who are your existing customers and are they loyal to the current ownership?

Why choose Legal Clarity? 

At Legal Clarity, we have extensive knowledge and experience needed to guide you through a successful business purchase. We’ll act as a partner and will work closely with you to achieve a desirable business acquisition. 

So what are you waiting for? Get in touch with us today to see how we can help!