Making a business purchase is a complex process. There are many elements involved, so naturally, it’s important for both buyers and sellers of a business to approach the transaction process with a clear idea of their own goals and expectations.
Business sales, mergers and acquisitions are commonplace in the UK. It doesn’t matter what size your business is; from a corner shop to a multi- site property, the transaction of a business purchase is one that carries with it many potential risks and pitfalls.
At North Yorkshire Law we take a “forensic” approach when it comes to commercial law. By guiding you through what you can expect when you sell or make a business purchase, we hope to raise awareness of all the elements involved to make things easier for you when you enter into a business transaction.
Here we will break down each element to give you an idea of what each component means. We will cover each in more detail on our blog, along with some frequently asked questions over the coming months.
What is a Business Sale Agreement?
So, what exactly is a Business Sale Agreement? A ‘Business Sale Agreement’ or a ‘Purchase of Business Agreement’ is a document used to transact the sale of a business between two parties, ie the buyer and a seller. Usually the agreement can be structured as a sale of the shares of the business or as a sale of the assets of a business.
Within the Business Sale Agreement, you will usually find elements covered such as details about the property, which includes stamp duty and land tax payable. Assets of a business are also included in the agreement if appropriate. This will be the fixtures and fittings. Another item that is included in a Business Sale Agreement is goodwill. The business name or goodwill of a successful business has value. This value takes the form of loyal customers and client data as well as the intangible assets such as the brand itself and local reputation.
When a business changes ownership in the UK, its employees may be protected under what is known as the Transfer of Undertakings (Protection of Employment) regulations or TUPE Takeover for short. Essentially this is where the purchaser must abide by all agreements regarding employment, this includes the existing employee’s jobs being transferred over to the new company. It is worth noting, that a Solicitor can also assist in resolving any outstanding employment claims such as absenteeism and redundancy should this be needed.
Warranties and Indemnities
Why is a warranty important when selling a business? Warranties and indemnities play a considerable part in the transaction process of selling a business. As is usual with any other type of warranty, it provides a buyer with confidence in the future of the business and any arrangements long after the purchase has been completed. It can also help them should any issues arise in the future. By disclosing all information regarding warranties sellers can mitigate any risks and provide assurance that they have been honest and upfront throughout the whole process.
Stamp Duty Implications when buying a business
There are some important tax points that should not to be overlooked when buying or selling a business. If you are buying a business, then you will be liable to pay Stamp Duty Land Tax (SDLT) as you would if you were buying a residential property., though the rates will differ. Many businesses rent premises when they first set up yet Stamp duty laws still apply to leases. The best way to avoid unexpected tax demands and hidden surprises is to have a professional Solicitor conduct thorough tax due diligence beforehand.
Implications of purchasing a limited company
When you purchase a limited company there are many factors to consider. This usually depends on the structure of the sale. If you are thinking about buying or selling a limited company, then there are two main options. The first option is to buy or sell the shares of the company, the second option is to buy or sell the assets from the company. In a deal where the business is run by a sole trader, then you can only buy or sell the assets of that company.
Lock out agreements or exclusivity agreements.
Until contracts are exchanged and the purchase of a business is completed, a seller can withdraw without consequence. A lock out or exclusivity agreement, essentially stops a seller negotiating with any other party during this period. This sort of exclusivity agreement is useful as it can give a potential buyer some protection, especially when large survey and search fees are being paid out by a purchaser.
When you purchase you need to be assured the person dealing with your case is the best person for the job and that they are both efficient and effective to avoid un-necessary delays and complications. When you work with us you can be confident your dedicated team at North Yorkshire Law will be by your side every step of the way to make the process as smooth as possible.
If you require information or assistance about business purchasing, then you can speak to our friendly team of professional solicitors if you contact North Yorkshire Law.