We have extensive experience in acting for a broad range of private and corporate clients.
We can offer effective and practical advice in the process of buying and selling a company or a business, from the inception to the completion of the transactions, and afterwards.
Our team can:
- Advise you on the appropriate structure of the transaction suitable to your personal circumstances
- Introduce you to potential funders and other professional advisers
- Undertake the appropriate due diligence investigations
- Draft, review, negotiate and settle the legal documentation
- Co-ordinate with your other professional advisers
- Advise on any issues that may arise following the completion of the transaction, for example on any claim for breach of warranty or restrictive covenants contained in the transaction documents
A typical business sale or company sale will involve the following:
1. Confidentiality Agreement
Sellers will wish to keep the following matters confidential:
- The fact that negotiations are taking place and
- Any information supplied to the perspective Buyer and his advisers
This is in order to:
- Ensure that competitors do not become aware of the proposed transaction
- Protect the goodwill of the business
- Protect the morale of the Seller’s employees
2. Heads of Terms
This document will set out the headline terms agreed in principle between the Buyer and the Seller.
These Heads are expressed to be ‘subject to contract’ and, apart from certain provisions, will not be legally binding. The main purpose of the Heads is to:
- briefly outline the commercial terms and structure of the proposed transaction
- Provide each parties’ professional advisers sufficient details to draw up and settle the formal documentation which will become binding when signed.
The Heads of Terms will include :
- The identities of the parties
- The structure and nature of the transaction. For example, is it the sale of the shares in the company, or the business and assets of the company
- The price and any price adjustment mechanisms e.g. is the price to be adjusted by reference to the net assets of the Company
- The payment terms
- Exclusivity i.e. will the seller be prevented for a specified period from entertaining discussions with other parties for the sale and purchase of the business/ company?
- Who will bear the responsibility for the legal and other costs? Usually each party bears its costs for the legal and other professional advice relating to the transaction. However, occasionally one party may agree to pay the other party’s costs if the transaction is aborted in certain circumstances
3. Due Diligence
Once the head of terms have been signed, the prospective Buyer and his professional advisers will investigate the assets and affairs of the business/ company being acquired.
This process is known as the “due diligence exercise”. It will usually involve:
- Requests from Seller’s solicitors to the Buyer’s solicitors to provide detailed information and documents concerning the assets and affairs of the business including copies of all material contracts
- The Buyer’s accountants attending the business premises to review and investigate the accounting and tax records and affairs of the company/ business being acquired
- The Buyer’s solicitors making searches at public registries e.g. the Land Registry, Companies House and Local Authorities
4. The Sale Agreement
This will be the main document governing the sale of the company/ business. The sale agreement will generally cover the following points:
- The identities of the parties
- The price
- How and when the price is to be satisfied
- Restrictive covenants preventing the Seller from competing with the business after the transaction has been concluded
- Warranties. These are statements of fact relating to the assets and affairs of the business, the accuracy of which the Seller is required to warrant. If any of these warranties subsequently turn out to be inaccurate, then the Buyer may be able to bring a claim against the Seller for damages. The warranties would cover the following main areas:
- The accounting and financial information supplied
- Taxation matters
- Trading since the date of the last annual accounts
- Tax Indemnities. These are intended to cover any unusual tax liabilities that, subsequently arise outside the ordinary course of business since the date of the last annual accounts
- Specific Indemnities. During the due diligence exercise the Seller may have identified potential liabilities, and may require a specific indemnity against such liability arising. For example, if a former employee has threatened a claim for unfair dismissal, the Seller may require an indemnity in respect of any liability that the business may suffer to that former employee after the sale has been concluded
- Limitations: provisions limiting Seller’s liability for breach of warranties. This typically includes the following limitations:
- Exclusion of claims for small amounts
- Capping the seller’s aggregate liability to the price received for the company/ business
- A time period within which claims have to be made
5. Disclosure Letter
The Sale Agreement will contain extensive warranties concerning the assets and affairs of the business. If any of these warranties turn out to be false, then the Seller could be liable to the Buyer for breach of warranty. However, some of the warranties may be incorrect and in order to prevent the Buyer making a breach of warranty claim, the Seller will disclose against the particular warranties in a letter called the disclosure letter.
If a proper disclosure has been made against a particular warranty, then the Buyer will:
- Buy the business/ company subject to the disclosure
- Be prevented from bringing a claim in relation to that disclosed matter
However, if specific liability has been disclosed then it is possible that the Buyer may seek to renegotiate the price or require a specific indemnity against that disclosed liability (see 4(viii) above).