Why You Need a Solicitor When Buying a Business
Purchasing an existing business is a complex process and a major financial and legal undertaking, so commercial conveyancing solicitor advice is vital to ensure that the transaction is legally sound and protects your interests. Whether you're a business owner or a first-time buyer, these transactions require careful consideration, and getting the right advice and support early on can ensure you can move forward with confidence.
Here we discuss everything you need to know about the solicitor’s role in purchasing a business, and why expert legal assistance can help you achieve commercial success.
Common Legal Risks in Business Purchases
Hidden liabilities
When you buy a business, you inherit all its contracts and assume the responsibilities and obligations that come with them. Employee contracts set out the terms and conditions of employment between a company and its staff, and any unresolved employee disputes – relating to benefits, salary, job role or termination, for example – become your responsibility. You may face issues related to severance pay, bullying and harassment claims, or unresolved employment rights disputes.
Poorly drafted contracts
Contracts spell out the rights and obligations of all parties involved in a business transfer. Poorly drafted agreements can cause confusion and misinterpretation, leading to unhappy customers, damaged reputations and derailed businesses. It’s important that any business contract is clear and legally watertight.
The risks of not having clear terms and conditions are vast, and an ambiguous contract could result in great financial loss for your business down the line.
Regulatory issues
When buying or selling your business, regulatory issues can be significant. Compliance is essential, and your firm may need to adhere to industry-specific regulations and standards, which vary depending on the sector.
Understanding the legal requirements of a business, as well as any liabilities that come with it, is imperative for the purchaser, helping to mitigate the risk of future legal disputes.
Role of a Solicitor in the Buying Process
Let’s see how a corporate solicitor can help you in the business sale or purchase:
Legal due diligence
Due diligence means doing a careful analysis of the business before the actual purchase. For business purchases, it involves collating and interrogating paperwork and files. It aims to verify the seller’s claims and uncover any liabilities or potential legal problems related to the company.
Whether you’re a first-time buyer or an experienced entrepreneur, due diligence should be conducted by a legal specialist before any purchase agreement is signed, to ensure you make a well-informed decision. Your solicitor will gather and scrutinise information, including intellectual property rights, and gain a thorough understanding of how the business is run to minimise any risk to you as a buyer.
Drafting and reviewing contracts
For a business transfer, a solicitor’s expertise is crucial in drafting, reviewing and finalising contracts to protect your interests and meet legal requirements.
A Sale and Purchase Agreement details all rights, responsibilities and liabilities associated with a business. A legal professional can draft or review this contract to ensure it’s legally sound. They can also manage confidentiality agreements, ancillary documents and, if applicable to the sale, property and lease contracts.
Negotiating terms
Negotiating deal terms to look after your interests as a business buyer is a vital part of your solicitor’s role, securing a fair and advantageous agreement.
Property solicitors can advise on negotiation strategy regarding sale price and payment terms, as well as negotiate on warranties and indemnities. They can also formalise agreed-upon milestones and timelines – such as for due diligence and completion – to ensure a smooth transfer.
Ensuring regulatory compliance
Solicitors overseeing a business purchase ensure that all the necessary legal documents are signed and exchanged, and that compliance with all relevant laws and regulations, such as competition law, tax obligations and employee rights, is achieved.
They can identify potential risks, obtain necessary licenses and permits and provide expert legal guidance, ensuring that both the buyer and seller are compliant.
Types of Solicitor for Buying a Business
The type of solicitor you need depends on your unique requirements. Different solicitors have different areas of expertise – so if you need a solicitor, make sure they’re experienced in business acquisitions.
Commercial solicitors
Commercial solicitors are experts in external business transactions, focusing on drafting and scrutinising contracts, leases and warranties. Essentially, they are experts in the ‘commerce’ side of the deal.
Corporate solicitors
The ‘company’ angle is the area of expertise for corporate solicitors. They primarily focus on the internal legal aspects of the company and how it operates – such as its structure and ownership. Corporate solicitors manage shares and mergers and are arguably better suited to larger business acquisitions.
Specialist business acquisition solicitors
Focusing solely on the buying and selling of businesses, specialist business acquisition solicitors have in-depth knowledge of both the commercial and corporate aspects of the process. They can guide you through each stage, from negotiating the initial heads of terms to finalising the purchase agreement.
How to Choose the Right Solicitor for Your Business Purchase
Finding the right legal advice according to your business needs is very important. There are several things you should think about when choosing a solicitor.
- Experience with business transactions: While many types of solicitor may have some knowledge of business acquisition, it’s advisable to seek out a solicitor who specialises in or has proven experience in purchasing businesses. This gives you the best possible chance of a successful transaction and prevents future disputes. A good solicitor will often have experience working alongside a business broker during the process.
- Local knowledge and licensing: For business purchases, local knowledge – in terms of the area, its companies and any regulations and licensing laws – is priceless. Ask for recommendations, or read online reviews, and consider a solicitor who can deliver an expert service at the local level.
- Transparent fees and costs: Everyone has different budgets when it comes to paying for legal support. To ensure you can assign money accordingly, ask about fees and estimated timescales at the earliest stage, and choose a solicitor who is transparent about their costs. You may be entitled to Legal Aid to help with solicitor fees.
- Communication and accessibility: Your solicitor should be approachable and knowledgeable, willing to answer any questions you may have about buying a business. For peace of mind, be sure to ask about estimated timeframes for each stage and about how often you will be contacted with an update. A good solicitor will ensure you have a thorough understanding of the process, explaining things simply and clearly, without any legal jargon.
Fill in the form or call us at 0808 304 7096 to discuss your business matters.
