What you need to know if buying or selling a business
24 October 2018
Buying or selling a business can be a stressful and time-consuming process. These are some of the important legal steps to take to ensure that the process is as pain free as possible.
- Get the right advice: You will need professional advice from a solicitor and an accountant who are experienced in corporate/commercial work. For example there are a number of tax considerations when buying and selling a business and these vary depending on whether you are buying assets or shares. Your professional team’s advice will be invaluable when negotiating the deal breakers and drafting the Heads of Agreement.
- Heads of Agreement:The Heads of Agreement should be agreed at an early stage after acceptance of the offer. It is an important document which can safeguard against disputes later in the process. It can also include an exclusivity period, a promise that the parties will not negotiate with any other party and confidentiality provisions.
- Research and valuation: Make sure you get a thorough valuation and know the sector you intend to buy into. Do you need to survey the property?
- Finance: Investigate finance from the outset to ensure that you are aware of your parameters when negotiating. As a buyer you will need to provide your business plan and accounts for at least the last 3 years to the finance provider or investor.
- Due diligence: The buyer will need to verify the information provided about the business during negotiations to make sure that the offer is accurate. There will be a period of legal, financial and commercial due diligence following acceptance of the offer when the buyer’s solicitor will provide a questionnaire raising queries and requesting documents e.g. accounts, contracts, director loans, customer lists and orders, IT systems and data control, stock and finance amongst others. This exercise should give the buyer a clear picture of the business, how it is performing and any potential or ongoing issues. It is common that during this exercise that some issues will arise that were not previously disclosed by the seller. The buyer’s solicitor should work to resolve these, if possible, and include any indemnities or warranties in the agreement to protect the buyer moving forward with the business e.g. ongoing litigation, or property issues. The financial due diligence should reassure the buyer that there are no hidden liabilities. Commercial due diligence will inform the buyer of its regulatory framework and the seller’s marketplace.
- The agreement: The drafting and negotiation of the agreement for the sale and purchase of the business is extremely important. As a buyer you need to ensure that the document includes the necessary warranties and the seller will want to limit any warranties. The seller knows that the buyer enters into the agreement on the basis of the statements/warranties given by the seller to the buyer about the business. The agreement should include remedies to the buyer of any breach of these warranties. A buyer’s solicitor should seek these to encourage active and comprehensive disclosure during due diligence as these may give rise to a price reduction and it also provides the buyer with a post completion remedy against the seller if any of the statements made or information provided is wrong. The agreement can provide for any assignment of leases, novation of contracts and TUPE considerations for the employees.
The buyer will want to include indemnities. An indemnity is a covenant/promise by the seller to reimburse the buyer in respect of loss or damage arising from a particular cause i.e. those risk areas identified during due diligence and can include potential or ongoing litigation, employee liabilities or missing documents of title for the property.
Catherine Cooney is a Partner in the Corporate/ Commercial team advises commercial clients on a daily basis on the acquisition and sale of businesses and other issues such as commercial agreements and shareholder agreements. For any advice please telephone 028 90434015 or email Catherine at email@example.com