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Buying a business is a two-way street

02 April 2018

A good solicitor will understand their client’s commercial objectives, and align the legal approach to these. Here are some of the key points that you might need to consider as part of the process.

Structure of the transaction: You need to decide whether to buy the shares or assets of a business. As there are fundamental differences in the legal effect and tax treatment of the two transaction types, you should take advice from   an accountant at this point. You will also need to consider whether you wish to buy the business in your own name or through a company, as again, there are different tax implications.

Heads of terms: Although not legally binding, this document can be useful for setting out the key terms of the deal early on, thus helping to save both time and costs when drafting and negotiating the sale documentation. It is worth requesting an exclusivity period to prevent the seller from negotiating with or soliciting offers from other interested parties during that time.

Payment mechanism: Rather than having a fixed purchase price, the final price can be ascertained by examining accounts of the business as at the date of completion. If the financial position of the business differs from what you expected, the purchase price can then be adjusted.

Payment terms: Rather than paying the full purchase price on completion, it could be prudent to defer payment of a portion of the purchase price until after completion and pay this in instalments.

Due diligence: This is crucial in identifying risks and liabilities arising from the purchase and consequently, what warranties and indemnities to include in the sale agreement. Having an online data room can facilitate the process of due diligence for both the buyer and the seller.

Restrictive covenants: You should aim to include restrictive covenants in the sale agreement to prevent the seller from setting up a competing business and/or poaching employees and customers.

Property: Is the seller leasing the premises from which the business is conducted and if so, can you assume the lease on the same terms or enter into a new lease? Whether the property is leasehold or freehold, early legal advice on the property aspects of the transaction is essential.

Staff: If the ongoing success of the business depends on retaining certain key staff, you should consider what agreements/incentive arrangements are in place and whether these are sufficient to retain these individuals.

Intellectual property (IP): Thorough due diligence should be carried out to ensure that you are acquiring the IP rights necessary to conduct the business in the same manner as the seller.

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Chris Wills LLB (Hons)
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