Buying and Selling a Business
Sale & Purchase Contract
Most business transfers comprise a sale of the goodwill and assets of the business and the contract must be drawn to ensure that all past liabilities remain with the seller. If the business is run by a company however, there is the option to instead transfer all the shares in the company to the buyer. Whilst this means that all the liabilities pass to the buyer, so too does the benefit of all contracts made with the company which might otherwise be lost. There are many factors that go into Buying and Selling a Business that need to be dealt with.
The seller should consider what they wish to sell and the buyer must decide what they want to buy. Negotiation may be required to reach an arrangement that both parties are happy with.
Property & Deeds
If the business premises are freehold then they will normally represent a substantial part of the price of the business. Buyers need to consider their funding arrangements and sellers should investigate the cost of redeeming any finance secured on the property.
Leasehold premises are more commonplace and any transaction will undoubtedly involve obtaining the consent of the Landlord. The Landlord will insist that their legal fees are covered by the parties and may also request a rent deposit from the buyer or even personal guarantees.
Employees
Legislation ensures that all employees pass to the new owner on the event of a business transfer. As such, it is vital that full disclosure is made regarding all employees, preferably with copies of their contracts of employment. If there are no written contracts a summary should be prepared of any agreed terms and benefits, such as: rates and timing of pay; working hours; job titles and descriptions; holiday pay; sick pay; and pensions.
A breach of the legislation will occur if an employee is dismissed for any reason connected to a business sale, subject to certain exceptions such as redundancy, but this is a complex area requiring careful advice.
Post Completion Restrictions
Once the business has been sold, the buyer will want reassurance that the seller will not set up in competition or try to poach customers or staff. This can be a difficult area of law but both parties should give consideration to what would be a sensible geographic area and time frame for any restrictions that are imposed and this will be reflected in the contract.
Third Party Contracts
These can either be contracts for the benefit of the business. Such as with a regular customer, or they may give rise to a burden on the business, such as maintenance or supply contracts.
All such contracts need to be reviewed to ensure that they will transfer over on completion (if required). It may affect the value of the business if lucrative contracts or heavily discounted supply contracts cannot be transferred. However this rarely affects company sales which is why they can be a popular method of acquiring a business.
Licences
If the business involves some licensable activity, most commonly the sale of alcohol, then the licence transfer requirements should be investigated promptly. The buyer will need to ensure that they hold all relevant qualifications before they acquire the business or they may not be able to commence trading immediately.
Legislation
All businesses are subject to legislation and regulations. However, both buyers and sellers should ensure that the business is compliant with, for example: Health & Safety guidance; Asbestos Regulations; Fire Safety requirements; Energy Performance of Buildings; and Waste Electrical and Electronic Equipment restrictions to name but a few.
Please telephone our commercial property team on 01323 727 321 if you have any questions on Buying and Selling a Business. Alternatively, please complete the contact form below.
Please note the above is for information purposes only and is intended to be a short summary. It should not be treated as a comprehensive guide and should not be acted on without qualified legal advice.