Buying a Business or Selling a Business

Purchase of a business or sale of a business

Buying a business or selling a business can be an exciting and stressful time. This page of our website sets out some of the important considerations from the perspective of the buyer of a business a business.

There are many similarities involved when buying a business. Equally, there are many differences. No one business, even a businesses operating in the same sector, are likely to be identical to the next. However, some issues when buying a business are likely to be more important to consider.

Legal issues when buying a business

Some of the legal issues to consider when buying a business are:

• Does the seller own the equipment (moveable and fixed), or are these on hire purchase/ lease terms. If you are buying a business, thinking the equipment is included, then you will want to check that the seller of the business can legally pass good title to you. If the equipment involves high value items then the buyer should be looking for valid receipts.

• Has the seller of the business complied with its statutory obligations relating to the employees? The process to establish the seller’s compliance with employment laws is known as the due diligence process.

• Are any persons held out as consultants in the business genuinely self-employed? We have seen situations where on completion of the purchase of a business, self-employed consultants who were dismissed subsequently bring an employment based claim for unfair dismissal.

• Whether you are intending on changing any employment terms of the employees e.g. to harmonise terms with any other employees you employee. Making changes to the terms of the employment of employees is likely to be regarded as “measures” for the purposes of the Transfer of Undertakings (Protection of Employment) Regulations 2006. As such the existing staff would need to be consulted. Running a consultation can be an extensive (and expensive) exercise.

• In respect of the premises, there ought to be careful consideration of the lease which can play a key part in the financial viability of the business purchase. Indeed, if a bank is providing finance for the purchase of a business, then they may require a certain minimum length for the duration of the lease.

Legal stages when buying a business

The main legal and commercial stages when buying a business tend to include the following areas:

• The person selling his business appoints an agent to find a buyer. There is an initial review of the business in order to provide marketing particulars.

• An interested buyer decides makes an offer to buy the business, and a solicitor is appointed to provide the legal advice.

• An exclusivity agreement may be put in place between the seller and buyer of the business.

• The accountant and solicitor acting for the buyer of the business conduct due diligence to identify risks and liabilities. If significant liabilities are discovered then the buyer of the business may seek to negotiate a reduction to the purchase price, or ultimately walk away from the transaction. Typically this process can run from a few weeks to a number of months.

• The agreement to buy a business is prepared and negotiated. Typically this process can also take a few months to a number of months.

• The deal is completed.

Investigating the business

When buying a practice, the law will provide very few protections as standard. The old legal saying ‘buyer beware’ is still very relevant in this area of the law. Depending on the particular dynamics of the business will depend on what pre purchase investigations should be made. This should be a dynamic process i.e. only areas likely to be relevant should be considered. There is nothing more irritating for a seller of a business to have to do, then complete a string of irrelevant questions. The legal advice should provide for a tailored approach in this area.

Legal advice for the purchaser, and the role of the solicitor

Where we are appointed as the lawyer for the purchase of a business our duty is to act in three key roles:

• First to investigate and report on the risks.

• Second, prepare and negotiate appropriate transaction documents. The agreements should include warranty protection, non-compete restrictions and the treatment of work in progress. There may also be extensive provisions to determine the price payable, include an earn-out; deferred consideration; and set-off provisions.

• Attending to the completion of the purchase of the business itself.

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