Sale of Business Overview

What Net Lawman says about the legal considerations on the purchase or sale of a business.

What Net Lawman.co.uk, our business sale document provider, says about its templates:

"Introduction

These documents are suitable for a transaction which transfers the whole of any business.

By “business” we mean a collection of assets, including supplier and customer information, stock, and intellectual property, all of which are used in a current, operational business. The ownership may be vested in one or more individuals, or in a company.

In deciding which business purchase agreements to offer, we have considered first, the structure of the deal. We offer documents for different structures. Nonetheless, to help you to choose, we have also named some of them as specific to the type of activities or services being carried out. In essence however, you can safely use one of these documents for a range of industries and sectors.

Suitable for both the buyer or the seller

The agreements are suitable for either a buyer or a seller to present to the other side as a deal. Usually it is the buyer who draws the agreement as he is the one that needs the protection - the seller knows all about his business. As far as possible, the documents protect both sides. However, without additional editing, the balance favours the buyer.

If you are a seller you can obtain an advantage by using one of these documents, suitably edited to remove anything you are unhappy with.

Each of these document templates provides you with a complete sale agreement. Edit to the exact terms you want, have both sides sign it (no witness necessary), date it - and you have a deal. Of course, a lot of water passes under the bridge before you reach completion. The buyer wants to know everything and the seller still wants to avoid reducing his price.

What you will find in your document

The terms are tailored to what you need

These agreements can seem daunting. Few people buy or sell a business often. We have provided versions edited to suit the most common business transfers. The provisions we make are common to most, but the ways they are applied are different for each document.

For example, every buyer will want to prevent his seller from setting up in competition, but how we make that happen is not the same for every transaction. As you read the following paragraphs, you can apply the points to your specific document, but only to the extent that your document needs it. We do not list every provision - just the ones you may want be sure you have.

The Parties

The parties could be companies or individuals. Whoever they are, a buyer should insist on a guarantor. This is particularly important when he buys from a company - which might cease to exist the day after he has bought its business.

Creditors and Liabilities

The buyer buys the assets in the business. Debts remain due to be paid off by the seller (most likely from the proceeds). The buyer does not take them on. However, we provide for the seller to agree to pay them off promptly so that suppliers do not hesitate to supply the new owner.

Price Apportionment

The price payable is on the mind of both parties. How it is apportioned between goods, goodwill, fixed assets, intellectual property and so on, may also be important to both of them. Your agreement covers apportionment so that you can keep your tax bill as low as possible. Timing of payment is not apportioned.

Cover all the angles at completion

In the excitement of the completion it is very easy even for professionals to forget something. Every contract provides a list of documents and other things to be exchanged at completion.

Competition by the seller and confidentiality about the deal

There are restraints against future direct competition by the seller in tough terms, cover for confidentiality of the terms of the deal itself and many other matters.

We believe our careful words will minimise the freedom of a seller to compete after the sale. If you are a seller, of course, you will want to edit these and other terms.

Transfer of website and other intellectual property

We have assumed that every business will use its website in ways we would expect. For example, a repair garage might not have a website at all, but if it does, it will not use its website for e-commerce.

Most businesses do or might use a website to a greater extent. For any business, its precious intellectual property rights are part of the sale to the buyer.

So much depends on warranties

The basic structure on any business purchase or sale agreement is based on warranties. Warranties are promises made by the seller to the buyer. Over the years they have evolved into a system whereby each warranty stays in the same exact form as the buyer wants and is not edited. Instead, if the seller cannot make the promise, he qualifies its terms as part of a “disclosure letter”. This is fully explained in the notes to every document. The warranties we provide give generous cover to the buyer. You will probably want to delete a few, but they are drawn to be appropriate for the particular type of transaction to which that document relates.

We have taken great care to draw the warranties in simple language so that both sides are absolutely clear about what is being warranted. We have included a large choice because it is easier for you to remove what you don’t need than to word new warranties yourself. Some of these documents include up to 100 warranties covering a wide range of affairs, from tax and accounts to contracts, the real properties, employees, intellectual property, information technology and more.

Timing of the deal

The real life experience of our legal team is that it is more efficient by far, to complete the deal on the day the contract is signed than to sign it for completion and payment at a future date. The main problem with future completion is that an awful lot can change in the course of a few days.

The downside of same day completion is that transfers of some property simply cannot be arranged as the bank draft is handed over. This applies most obviously to transfers or real property, leases, domain names and sometimes licensed intellectual property. In these agreements we have covered these points as far as possible, but much of it is down to you to arrange for everything to come together when the cash is handed over and the agreement dated.

What property will be handed over at completion

The buyer will need to know what he will get when he hands over the bank draft or clicks away his cash.

The list includes software, hardware, customer information, stocks of goods, special information letters to suppliers and customers - and anything special to your business that you need to add here.

Other matters

Real property

A business has a location. It may be a private house or a series of buildings set on a 1000 hectare spread on an industrial park.

We have provided for the possibility of the seller also selling the commercial property used by the business. Where specified, the agreement is also an enforceable contract for sale of the property. In other cases, a business will lease its property. We have provided for that too in a transfer of the leasehold interest. So unless we note otherwise, each document covers the commitment to complete the property transfer (when you will need a conveyancer) as well as a sale of the business.

Extensive notes to help you

We assume you will not often have sold your business, nor indeed have bought one. In these documents, the help notes are particularly detailed, running in most cases to half the length of the document and warranties combined. The notes include a full explanation of the TUPE regulations and of how warranties work and of how to deal with contracts for sale of property. As always with Net Lawman document notes, there is a short explanation and guidance on every paragraph.

In addition to the notes, we automatically send you a guide on how to deal generally with the editing and completion of a legal document.

Buying or selling less than the whole business

We have included in this section three other documents for slightly different circumstances. We describe them here.

Transfer into a company structure

When your business reaches a certain size, you may wish to transfer it to a limited company or an LLP. That usually means you are transferring all of the assets to that new “vehicle”. You may decide to keep back some assets in your own name so that you can sell them at a later date or license them (intellectual property assets) or lease them (plant, machinery, real property) to your new company. But whatever you decide your deal will be, you should use a binding legal document for the transaction.

You do not need a witness for this sort of agreement, but it may be a good idea to have one so that the date of the agreement cannot later be challenged. Otherwise you will just sign twice - once for yourself as seller and once as director of your acquiring company. We give full information about this in the “Guide to Editing Legal Documents” which we send to you when you buy your document.

You will need the document as evidence for certain people, for certain reasons:

• your new company - to comply with the Companies Act 2006 by keeping minutes of the meeting authorising so important a transaction
• HMR&C - for VAT changes
• HMR&C - for calculating the income / corporation tax liability of you and the company
• your bank - particularly if you are a borrower
• you - to identify who owns important intellectual property - particularly if you kept any out of the transfer to your company

Purchase of assets only (including hive down)

This agreement is for buying or selling assets only, not the whole business as a “going concern”. You could be selling or buying plant, equipment, a customer list, vehicles, stocks, work in progress, software, insurance re-claimed goods, fire-damaged goods, or any other asset.

The only thing that you should not use this document to buy or sell is real property (land and buildings).

The key point about this agreement is that the seller gives no warranties. That makes this document suitable for a “hive-down” or any other sale by a liquidator or administrator or trustee in bankruptcy. However, the agreement is also suitable for any private sale where the seller will not give any warranty. The buyer gets what he sees with only enough help from the seller to enable him to acquire the goods.

Purchase of used plant or physical assets

This agreement is for a straight purchase of assets. The transaction is not a sale of business. It could cover any goods at all, but drawn particularly for bulk deals. It can be used by a buyer or a seller where the counter party may be any person, in any country.

Whatever the asset or parties, this agreement provides the protection to both sides with a set of fair terms. You can edit easily to suit your specific deal. By and large, you can set the terms you want. Our guidance notes will tell you what you can change safely, and what we don't advise changing."

Detailed guidance notes are provided with each template. Net Lawman offers a money back guarantee if the document is not what you need, as well as a legal review option if you want some professional assistance when you are drawing up your documents.

Notice:

The documents menus are designed to describe the documents, but please be sure that you check them over carefully to ensure that they do meet your needs. All documents are subject to Net Lawman's Terms and Conditions, which we ask you to read before you purchase any documents.

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