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Buying or selling a business

Our Commercial Team at Knight Polson know that your business sale and purchase is unique and understand the importance of the transaction to you and your business.

Our aim is to get to know you and help guide you through your transaction with a proactive, practical and commercial approach; whether this is your first sale or purchase or one of many.

Some of the things you should consider when buying or selling a business:

  • Structure: whether by way of a purchase of the shares of the company that owns the target business (including its liabilities) or by a purchase of the assets which make up the business.
  • Employees: including responsibilities to and retention of employees.
  • Pensions
  • Business critical contracts
  • Intellectual property rights
  • Commercial property and environmental issues
  • Consents and third party approvals

Our Commercial Team includes experts in commercial property, employment, litigation and company law ensuring that the right people are on hand to advise you and your business.

Understanding the Process and the Legal Documentation


Avoid making a legal commitment by mistake. A binding deal can be made without anything in writing (even through a conversation). When talking or writing, you need to make sure the buyer/seller is aware that nothing is legally binding until the formal acquisition agreement has been signed; for example, mark correspondence “subject to contract”.

Acquisitions are often highly business sensitive and so it is advisable to sign a confidentiality agreement at an early stage. It is important that you take legal advice before signing a confidentiality agreement to ensure that your position is adequately protected and your obligations under the agreement are reasonable.

Heads of terms are usually signed at an early stage of a deal before detailed due diligence.

They set out the key terms of your deal, which may include a period of exclusivity, and are generally not legally binding. However, legal obligations can be created inadvertently and a “moral commitment” can be created that can affect your future bargaining position. Again, it is important that you take legal advice before signing Heads of Term.

The purpose of a due diligence review is to investigate the assets and liabilities of the target business at the negotiating stage to help a buyer understand and make informed decisions on the purchase. Information coming to light during the process can lead to negotiations on specific protection to be included in the acquisition agreement and in respect of the price.

The extent of the investigation is also likely to be governed by practical realities, such as available time, expense and the overriding need to get the transaction done.

This is in the form of a due diligence questionnaire raising questions about the business for example to elicit information about the businesses assets, liabilities, employees, contracts with customers and suppliers.

Business due diligence looks at broader issues such as the market in which the business operates, competitors, the business' strengths and weaknesses, production, sales and marketing, and research and development.

As part of the due diligence process, a buyer will usually instruct accountants to prepare a report on the financial aspects of the target business. This financial due diligence will generally focus on those areas of the target's financial affairs that are material to a buyer's decision to purchase.

This is the key document as it sets out the agreed terms governing your transaction and the timetable and mechanics of the deal. It will typically contain a number of provisions designed to protect a buyer which will need to be negotiated. This protection will include warranties covering the different aspects of the business such as the matters listed above. Warranties are contractual promises given by a seller about different aspects of the target business (for example, that it owns all the assets and there are no disputes with third parties). If they are untrue, a buyer may be able to sue for damages.

The disclosure letter is an important document that must be read in conjunction with the warranties in the acquisition agreement. A buyer cannot make a warranty claim for anything disclosed by the seller in this letter, although it may want to negotiate alternative protection for disclosed issues.

The above just provides an overview of some of the law in this area. It is not a complete and definitive statement of the law. It is no substitute for legal advice given after consideration of all material facts and circumstances. No action should therefore be taken in reliance on it without taking specific legal advice.


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