If you are selling a business it is important to take legal advice and ensure that the terms on which you intend to sell are set out a binding legal agreement.

There are two methods by which you can sell your business.  You can:

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

The two are fundamentally different. If you undertake a share sale, you sell the company with all its assets and liabilities.  

If you undertake an asset sale, you just sell specifically identified assets and assign responsibility for specifically identified liabilities.  

Due diligence

It is likely that you will be required to provide detailed information to the buyer about all aspects of the business. This information gathering process is known as a legal due diligence exercise.  

This is primarily for the purpose of allowing the buyer to understand the business, but the process may also be useful to the seller as it can highlight matters that the seller should formally disclose as part of the disclosure letter (see below).

Sale agreements

The sale agreement will set out the terms on which the business will be sold, including price and payment terms. It is likely that a large part of the sale agreement will be devoted to warranties and indemnities.  

Warranties & indemnities

Warranties and indemnities are methods by which the buyer can seek to recover losses that it has suffered as a result of the acquisition of the business from the seller.  

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 an indemnity in respect of certain potential liabilities associated with the business.  Indemnities allow the buyer to recover losses it suffers in relation to such potential liability on an enhanced basis. It is therefore important that indemnities are carefully considered and negotiated by the seller.  

Let us help

Our corporate team has significant experience of acting on behalf of business owners in connection with business sales. Details of some recent deals they have been involved in can be found here.  

Contact us now

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.