Buying or selling a business


Are you considering buying or selling a business?† If so then the information below may be of help to you.


There are two principle ways that part or all of a business can be acquired or disposed of.


An individual or a limited company can sell the assets required to carry on a business, for example a car dealership selling one of its sites, or shareholders can sell their shares in a company, in which case the buyer takes on the company lock stock and barrel.


Acquiring assets tends to be the simpler form of transaction as the buyer will only be acquiring identified assets (premises, stock, customer lists, goodwill etc) and in this case the buyer may choose not to concern himself with such an extensive due diligence process to unearth any hidden liabilities that might be wrapped up in a company purchase. However, there can be advantages and disadvantages to both methods:



 The seller may benefit from business property relief on the transfer of his shares;


 Conversely, it may be more tax efficient for a buyer to acquire assets and there is likely to be some horse trading to reach middle ground that suits both sides.


 If undertaking a share sale, the seller will be able to off load the whole business and wonít be left with the proceeds of sale sitting in the shell company that will ultimately need to be dissolved after the proceeds are removed, possibly incurring a separate tax liability.


 Any assets locked in the company will automatically transfer to the buyer acquiring the shares without the need to transfer each asset individually if there are specific legal transfer requirements.


 If a company has a large number of operational contracts which the buyer wants to take over, it may be easier to take over the company by purchasing its shares rather than approach the customer/supplier/landlord for permission to assign the contracts to the buyer.


 It may be that the seller only wants to sell some of the assets of the business in which case a demerger may need to happen before the sale (see section on demergers).


 A seller would undertake an asset sale if he wanted to continue to trade as the company following the sale.


Once the appropriate method has been identified, the buyer will need to undertake a due diligence exercise. The scale of this will depend on how well he already knows the business he is buying, the price he is paying and the trading history of the company (see due diligence section). A buyer buying shares is generally taking on a bigger risk so the process is likely to be more thorough.


The due diligence process will assist your lawyer in drafting the business purchase agreement as it will identify areas where specific warranties or indemnities are required. It will also play a vital part in allowing the sellerís solicitors to draft a disclosure letter. The disclosure letter sets out the exceptions to warranties given in the business purchase agreement which will prevent the buyer from claiming any loss from the seller in respect of liabilities he has been told about. There will be various other documents that will be needed depending on the exact circumstances but typically these include forms of appointment and resignation, shareholder approval to the transaction, completion board minutes and stock transfer forms.


After the deal has been done, the buyer will need to meet any stamp duty liability arising on the transfer of shares or on any land transactions that may have formed part of the transaction. The buyer should also be keeping a close eye out for any liabilities arising that he was not aware of that may give rise to a warranty claim against the seller.


Click on the link below if you would like to discuss buying or selling a business in a free 1 hour legal consultation .† This can be face to face if geography permits or over the telephone.† Legal Services for Business is based between Farnham and Fleet and can offer legal advice across Surrey, Hampshire, Berkshire and London.

Tel: 01252 850058,† Mob: 07789 773 985 ,† email:

Lynda Lawson trading as Legal Services For Business is a sole practitioner authorised and regulated by the Solicitors Regulation Authority under number 515697.

VAT registration number 136070536.† The materials on this website are provided for general information purposes only and do not constitute formal legal advice.





Contacts†††††††††† ††††††

Useful advice on company law





Useful links


Useful advice