We are well aware that taking legal advice is expensive and that often, businesses try to deal with legal matters themselves, whether in drafting their own terms and conditions of trading or by buying or selling their businesses on a hand shake. Sometimes though the DIY route can turn out to be extremely costly. We’re dealing with a matter at the moment where the Buyer and the Seller did a deal on a handshake. They’ve known each other for years and work in the same industry so when one needed to retire it made sense to strike a deal with his old pal and, of course, in that situation legal advice wasn’t needed, was it?
They decided to do an asset sale as that way, the Buyer would cherry pick the assets he wanted, the Employees would be safe because they’d TUPE over and the Seller could then liquidate the Company and extract the consideration. So far, so good, however neither party had twigged that the business could only trade while it was in a possession of a very specific licence granted by a governmental body and this licence was personal to the corporate entity which had applied for it and it could not be transferred. By the time the Buyer and the Seller had realised, the Buyer had paid across a large part of the consideration and was running the business. They’ve had to undo their handshake and we’re now working on the share purchase agreement.
Client’s often blanche when selling their business and the due diligence questionnaire arrives but it is there to flush out issues like a non transferable licence which will hopefully save both parties time and money and ensure that a buyer knows what he’s buying. Sometimes a handshake can be a false economy. If you’re considering selling or buying a business come and have a chat with us beforehand.