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buying or selling a business

If you are just at the start of your venture adventure, you may consider selling your business, or buying other businesses to expand your business, to be a long-term goal, perhaps even your end goal.  However, you may find that buying all or part of an existing business is a cost-effective way to help launch your own business - with a lot of arrangements already in place.   


Either way, it is worth understanding the basic process and where to go to get relevant help when you need it.  It can become quite complex, and you should aim to seek professional legal and tax/financial advice to ensure you cover all relevant risks and opportunities.

shares or assets

Sale and purchase of a business can mean either selling some or all of the shares in a limited liability company, or alternatively selling some or all of the tangible or intangible assets of a business (whether or not it is formed as a company).  For more information on different business entities, see Trading Structures.

Company Shares

To start your venture by buying an existing company, you would need to buy all the shares, or at least a controlling interest according to the company's own documentation and relevant legislation. You would also need to understand the position of existing directors (board members) - would they stay on or leave when you buy, and do you want yourself/others to be appointed as director(s) going forward? 

If you are selling shares: of course you would need to have your business set up as a company to be able to do so, and would then need to consider how much you want to sell .  Are you selling up entirely, or just looking to 'dilute' your equity (shareholding), perhaps to raise finance by bringing in new shareholders (see Funding for more information).   Do you want to retain a controlling interest, or stay on as a director?

A key point to note is that the company continues as the same legal entity, albeit with different owners (shareholders).  All the company's rights and obligations under contracts with employees, contractors, suppliers, customers, partners etc. will continue - unless the contract has a 'change of control' provision in it, stating that particular rights or obligations may end or change when a specified % of the shareholding changes ownership.    All assets - and debts - will continue in the name of the company.

Business Assets

By contrast, a business asset sale means selling physical property (buildings, office equipment, machinery, materials, stock) or intangible property (goodwill or other intellectual property (IP) rights, software or data).  You can also sell debts, so that the buyer takes on the obligation to pay it back to the lender.  These assets (or debts) could be in your name as a sole trader, or held by a company. 


Either way, upon sale, the assets would no longer be owned by you/your company, even if you keep all your shares in the company. There may be rights or obligations in a contract with a supplier, customer etc. that relate to a particular asset (for example a tenant's rights to continue to use office space in a building, a licensee's right to use particular software or IP rights - with obligations to pay rent/licence fees in return).  You would need to be clear how/whether these rights and obligations these continue with the owner. 


If a significant number of assets are transferred this may in effect amount to a transfer of the business, or 'undertaking'.  Note there is legislation to protect employees caught in the middle of this. 

Sale & purchase process

You should allow plenty of time for this, whether selling or buying. 


Heads of Terms


Typically you would have high-level discussions with the other party and aim to reach agreement on key areas. The parties may then capture this in a 'Heads of Terms' document.  There may be more than one interested buyer.  A buyer may want to include in the Heads of Terms a commitment from the seller to let them have exclusivity whilst they continue with a more detailed review, or  seek to arrange necessary funding for the purchase - perhaps for a number of months.

Sale & Purchase Agreement (SPA)

The parties will ultimately need to agree detailed terms and conditions for the sale.  The seller will be keen to be clear on payment (what, when, where, how), and to make as clean a break as possible, avoiding any lingering responsibilities for anything that goes wrong after the sale that results to something the seller (or the company) did before the sale.

The buyer will (should!) want to look closely at the target business assets/company (see due diligence below), and get appropriate contractual assurances (warranties and indemnities) from the seller (see Contracts for more on other contractual different provisions). 


Can the buyer warrant (give a commitment) that all debt repayments are up to date, all insurance is in place, it owns all the IP rights it says it has, etc., and what happens if it turns out any of these commitments turns out not to be true after the sale: what can the buyer do if there is a breach of warranty? How much can the buyer claim - is there any limitation on the seller's liability?  

Due Diligence

This is a critical and time-consuming part of the process. The buyer will want to look in detail at the records, finances, contracts etc. of the target business/company, and may have to sign a 'non-disclosure agreement,' agreeing to keep what it sees confidential, before it is allowed full access.

The warranties in the sale and purchase usually relate to the following areas, all of which require due diligence:

  • Tax, including VAT, reporting and payment obligations all in hand

  • Health & Safety

  • Environment

  • Compliance with all other relevant legislation/regulation

  • No litigation brought/threatened by or against the business

  • IT and software

  • Real property

  • Machinery, equipment, vehicles etc.

  • Stock, material supplies

  • Appropriate insurance policies in place

  • Other areas, including anything of specific relevance for the target business or its industry.

If there are any 'skeletons in the cupboards,' or at least irregularities that mean the seller cannot give a full warranty, then it may list 'disclosures' against relevant warranties in the SPA - which in turn may lead to a discussion on a reduction in sale price to reflect the buyer will incur in correcting or compensating for this in practice going forward.

The seller should really carry out a thorough review before seeking buyers, getting its 'ducks in a row,' correcting irregularities where it can to minimise potential concerns for a buyer.

For more on key risks a buyer may look for, see Risks & Insurance.


Conditions Precedent & Closing

The buyer may agree to sign the SPA, but withhold payment (and delay transfer of ownership) until certain issues are addressed - until certain 'conditions precedent' to the sale are satisfied.  The deal then closes when payment is made and ownership is transferred.

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