Business Sale Agreements

We act for buyers and sellers of private businesses, from an owner selling to a competitor through to a staged transfer to family or management.

Shares or assets

The first structural question is whether the buyer acquires the shares in the company that runs the business, or the assets of the business itself. The choice has different consequences for each side.

A share sale transfers the company as it stands, including its history. The buyer inherits the liabilities, known and unknown, which is why buyers generally prefer asset sales and sellers generally prefer share sales. An asset sale requires each asset, contract, lease and licence to be identified and transferred, which means third party consents and more moving parts.

The tax outcome differs too, and can be substantial. Concessions available on one structure may not be available on the other, and the position is not the same for the buyer and the seller. This is a question to settle before heads of agreement, not after.

What actually transfers

The recurring surprises in a business sale concern things the parties assumed would come across:

• Contracts. Customer and supplier agreements frequently require consent to assignment, or contain change of control clauses that are triggered by a share sale.
• The premises. A lease usually needs the landlord's consent, and the landlord may use the moment to require a new guarantee or renegotiate terms.
• Employees. On an asset sale, employment does not transfer automatically. Entitlements, continuity of service and who bears accrued leave need to be dealt with explicitly.
• Intellectual property, including the business name, domain names, social accounts and software licences, which are often held personally or by an unrelated entity.
• Licences and registrations, some of which cannot be transferred at all and must be applied for afresh.
• Loan accounts and guarantees, which frequently exceed the equity value and must be dealt with at completion.

The protective terms

• Warranties about the business, and a disclosure schedule qualifying them.
• Limitations on warranty claims: caps, time limits and minimum thresholds.
• Indemnities for identified risks, which do more work than general warranties.
• Restraints of trade on the seller, drafted with a realistic scope and duration.
• Retention or escrow, and any earn-out, including how it is calculated and who controls the business while it runs.
• Completion mechanics, including the adjustment for working capital and debt.

Earn-outs deserve particular care. A seller paid partly on future performance has handed control of that performance to the buyer, and the agreement needs to say how the business will be run in the meantime.

This page is general information. It is not legal or tax advice, and the transaction in front of you will change the answer.