Do you know what legal risks you need to consider before proceeding?

Structure

As a Seller do you operate the Business through a limited company and, if so, do you want to sell the shares in the Company or sell the Assets?

If you are the Buyer and you buy the Shares of the company you might also be buying liabilities you don’t know about. If you buy the Assets you are in more of a position to ‘cherry pick’ the assets you’re looking for but you need to ensure the Seller has the right to transfer those assets to you.

It is worth obtaining specific tax advice before settling on a disposal structure. Asset deals are typically less tax efficient for Sellers than Share Sales and this can affect the price you pay.

Things to look out for

Contracts — you will need to check the terms of the key contracts to the business:

  1. 1 If you’re buying the assets then the Seller must be able to assign the benefit of the contracts to you. Often there will be a prohibition on assigning the contract without the permission of the other party to the agreement and the Seller would normally be unwilling to approach the other party until the deal has been signed.
  2. 2 If you’re buying the shares there is sometimes a right to terminate in the event of a change of control of the Company.

Intellectual Property Rights — a brand, trade mark or patent my be the most valuable assets of the business. You need to ensure that the Seller or target business:

  1. Owns the rights.
  2. Has adequately protected the rights
  3. Can transfer the rights.

Employees — even if you’re only buying the assets, the employees will transfer across to you on the same terms and conditions of employment and the Buyer is responsible for the employees from that moment. You may also have to take over the pension arrangements of the business.

Property — you need to consider whether the property occupied by the business is freehold or leasehold. If the property is leasehold you may need to obtain the Landlords consent to any assignment. Even if you’re buying the shares in the Company you need to undertake all the searches and checks which would apply if you were buying the Property on its own.

Despite the Buyer having undertaken the investigations into the matters above the Buyer will probably still ask the Seller to provide warranties and indemnities. The Seller needs to consider those warranties carefully and seek appropriate legal advice to ensure the Buyer can’t pursue the Seller for damages in the future.

If you are considering buying or selling your business why don’t you give us a call and we can talk through the potential hurdles and structure before you commit yourself to any particular course of action.

Please contact Cathy Cook at Jordans Solicitor in Wakefield, West Yorkshire
E: Cathy Cook


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