If you are buying a business it is important to take legal advice to ensure that the terms on which you intend to buy are incorporated into a binding legal agreement.

There are two main ways you can structure a business purchase. You can:

• acquire the assets of a business (asset purchase) or
• acquire the shares in the company that owns the business (share purchase)

The two are fundamentally different. If you undertake a share purchase, you acquire a company with all its assets and liabilities (including some you may not know about).  If you undertake an asset purchase, you just acquire specifically identified assets and assume responsibility for specifically identified liabilities.  

Due diligence

It is usual for a buyer to undertake a due diligence exercise, involving the submission of a detailed questionnaire to the seller including wide ranging questions about the business. This is a valuable method of gaining knowledge of the target business. A due diligence exercise will also be useful in assessing the level of contractual protection to be sought from the seller in the form of warranties and indemnities to be included in the purchase agreement.

Purchase Agreements

The purchase agreement is the key document as it will deal with the transfer of the assets or shares, payment of the purchase price and other important issues such as warranties, indemnities and restrictive covenants.

Warranties & indemnities

Warranties and indemnities are methods that a buyer may use to recover any losses that it may incur as a result of the purchase of the business from the seller. They are in themselves a complex topic and are commonly the issue that takes the greatest negotiation in the acquisition of a business.

Warranties take the form of a series of statements about the business that the seller 'warrants' as being correct.  If it subsequently turns out that any of the warranted statements is incorrect, then the buyer may be able to make a claim to recover any loss in value that it has suffered as a result of such incorrect statement.  

If the seller cannot ‘warrant’ that a particular statement is correct it can disclose the reasons why to avoid liability for breach of that particular warranty. Such disclosures are usually made in the form of a ‘disclosure’ letter sent by the seller to the buyer.

The buyer may also require the seller to provide indemnities in respect of certain potential liabilities associated with the business. Indemnities allow the buyer to recover losses it suffers in relation to such potential liabilities on an enhanced basis.

Our corporate team has significant experience of acting for clients buying businesses. Details of some recent deals we have been involved in can be found here.  

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For further information or to arrange an appointment contact a member of the corporate team on 0115 9 100 200 or email corporate@actons.co.uk or fill in the contact form below.