There are generally two ways to buy a business; an asset purchase and a share purchase.
If a company is owned by shareholders and you wish to purchase the controlling share, then you must be aware that the history and current status of the company remain. So, for example, if there are any ongoing liabilities or tax investigations these will continue with the company once it is in your control.
However, if you make an asset purchase, upon completion there is a line drawn in the sand, so to speak. Previous liabilities remain with the seller. That said, there are upsides to purchasing shares in a company too, and time must be spent evaluating which option is best for you.
Both types of purchase must undergo a strict due diligence process to understand any issues around the business operation, its finances and its value. This is where the experience of the team at Dawson Radford really comes into its own.
Having an acquisitions expert create the purchase agreement is essential. For a share purchase, you may need to consider a price adjustment clause, as valuing a company simply from its accounts is only part of the story. There could be a liability; there could be a good asset value but in the form of debtors that aren’t guaranteed; the value of the company could be changed by a dividend declared just before completion of the sale. It is of paramount importance that the purchase agreement benchmarks what you as the buyer believes you are buying so that adjustments can be made to the price, as a decrease or an increase, before completion.
As the new owner of the company or business, you may also wish to restrict the previous owner’s future business ventures through anticompetition clauses. Through such clauses you can stop the previous owner setting up a business in competition with their old one for a certain period of time and within a certain geographical radius. You can also stop them approaching the clients and the suppliers, if those contacts could have a negative impact on the business. These clauses can also stop them approaching employees and it can stop them using a similar business name in the future.
The other major issue that a buyer will need to have covered in the purchase agreement is that of warranties and indemnities relating to the company or business. These are contractual statements in the agreement. The seller has a duty to correct any inaccuracies in the statements by way of disclosure, and should they not do this, and any are found to be misleading or untrue, you have a breach of contract claim against the seller. These statements are normally dealt with on a contractual basis; however, they are sometimes dealt with on an indemnity basis - particularly in respect of tax issues so that compensation can be claimed.
If we are working with you on the purchase of a business, our role is to not only guide you through the process but also to ensure that the purchase agreement, drawn up by the purchaser’s solicitor is fair and correct and all clauses within it have been answered and all relevant information disclosed. We are there to protect you and ensure you get the true value of the business.
Usually the party selling a business will want to complete the sale at the earliest date possible. However, the buyer may wish for the sale to take time so that any liabilities can come to light through their own due diligence checks.
It may also be that the buyer cannot fund the purchase in one lump sum and so other structures may have to be considered. An example of this would be a partial payment at completion and then further payments on future dates. Should a payment plan be acceptable to you as the seller, security would need to be agreed in case the deferred payments did not happen as scheduled.
Whether you are buying or selling a business, acquisitions are one of our specialisms. We work with you through the whole process and make it as simple and straightforward as we possibly can.
Please contact us for any more information or for an informal chat about your requirements.