Practical considerations when buying or selling a business

Things to Consider when Buying or Selling a Business

What advisers do I need ?

Legal advice should be sought at the outset of a proposed transaction. Ideally you would not even enter into any sort of negotiations without first seeking legal advice.

If you are selling your business, you will need specialist tax advice from a qualified individual in order for the structure and timing of the deal to be suited to your needs.

 What can I do to prepare for the transaction ?

If you are a seller, you should try and ensure that you have a master copy of all your customers, suppliers, contracts, key accounts, employees and any other relevant information and contracts. This will be standard for most companies, but if a seller looks to enter a transaction without this information it will make the due diligence exercise much more difficult and therefore expensive.

How can I be sure that my “trade secrets” will remain confidential? How can I ensure confidentiality ?

During a transaction it is a natural occurrence that a seller will be allowing the buyer to see information which they would normally consider confidential and commercially sensitive. A key safeguard which is to be used is the confidentiality agreement (this is sometimes called a non disclosure agreement). It is key that all sellers ensure that the buyer has signed the confidentiality agreement before they allow them to see the confidential or sensitive commercial information. If the information is allowed to be witnessed by the buyer without a confidentiality agreement being in place then it becomes very hard to protect this information at a later date.

Share sale or Asset sale ?

When a business is being run as a partnership or even by a sole trader, there are no shares to buy. This type of sale is referred to as an asset sale as the assets of the business are being sold to the buyer rather than the business itself. The assets can include for example all major contracts held, the goodwill of the business or even a list of all of the businesses customers.

If the business is owned by a company then the buyer has a choice as to whether he buys the business through an asset sale or a share sale. An asset sale would work the same way as if the business was being run by a partnership or sole trader in that the buyer would select which assets they would want to buy from the selling business. Under a share sale, the entire company would be bought from the shareholders, this includes the assets and liabilities. Generally a buyer will always want to purchase the company through an asset sale as the outstanding liabilities of the company will not be carried to the buyer.

Conversely a seller will prefer to sell his shares in the company rather than sell the assets piecemeal.

It is important to remember that if the transaction proceeds as a share sale it is the shareholders of the selling business who are the sellers, whereas, if the transaction is to proceed as an asset sale it is the company or entity itself who is the seller.

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