Buying a Business
Buying a business is a significant event and it may only happen once during your business journey. Therefore the legal process can seem daunting, even to the most experienced SME.
However, we have help. Attwells Solicitors specialise in business law, offering a fixed fee legal service for buying a business. Our lawyers will guide you through the process, meeting any time-critical dates and explaining the legal terminology in plain English.
Reasons SMEs buy a business
Buying a business can be easier and quicker than setting up and beginning a new one. Depending on the business you buy the brand may have value and a client base. From a financial point of view, it may also be easier to obtain a business loan due to the business having a reliable income.
Other benefits include existing business and marketing plans, trained staff, and a known market for the product or service you are providing.
On the flip side, an existing business is likely to cost more when compared to starting up your own business. Depending on the brand value and trading history this could be significate. In addition, you are likely to have professional fees, insurance, warranties, and accountant fees for example. Plus a period of time without a cash flow and the probability of employees leaving.
What you can expect when instructing Attwells Solicitors
The process of buying a business
Your lawyer will typically start by drafting your heads of terms. Heads of terms is a name given to a document that sets out the basic terms and conditions of your purchase. It can also deal with confidentiality requirements, the agenda, and timescales. This can be done, in part by yourself with the support of your lawyer. This is then sent to your seller and helped to inform the sales contract.
Next, your lawyer will review the draft contract prepared by the sellers’ solicitors. Your lawyer will then talk through the sales contract with you first. This can be done in person, over the phone, or via Zoom. We will point out issues, possible risks, and conditions we feel could be improved in your favour. At this point, we will raise queries on your behalf.
The complexity of the sale documentation depends on the nature or value of the acquisition. It can also be affected by risk and how much risk you are willing to take. But don’t worry, your lawyer will use their legal expertise to advise you. Typically we will chat through your options first, then confirm them in an email. This allows you time to think and review our advice.
What is the difference between a business and a company?
Essentially a business is owned by an individual in their personal name. Whereas a company is owned by shareholders, who own shares. Consequently, a company is its own entity. As a result, the shareholders do not have personal liability and the company share or shares can be purchased without the company’s legal status changing.
Buying a business as a share or asset purchase: What is the difference
When buying a business you can choose to purchase the business via acquiring the shares or the assets.
Fundamentally when you buy a business via purchasing shares you are buying the shareholder or holders’ shares of the business. Yet, this is normally the entire share capital, meaning all the shares. As a consequence, this will only occur when purchasing a company, as companies have to be registered with Company House and therefore require shares. However, this can be as little as 1 share, meaning there is one shareholder. But it’s more like in large enterprises to be many shares, with numerous shareholders.
Yet when you buy a business via purchasing the assets you are acquiring the assets owned by the business.
Typically, assets include goodwill, manufacturing and IT equipment, and all intellectual property, including client data, plus infrastructure, and brand assets, such as websites, logos, and social media accounts. The assets will relate directly or indirectly to the products or services the business produces or plan to produce and can be tangible or intangible.
In addition, some asset business purchases can include rights and liabilities. This is very much dependent on the type of business you are purchasing. For example, if you purchase a construction business you may be liable for past building work. But if you buy a hair salon, your liabilities are likely to be limited to ensure you have the correct insurance.
How are the employees dealt with when buying a business?
If you buy a business by purchasing the shares the control of the business is passed over to you. Therefore the legal status of the business is unchanged, this includes all employment contracts.
Therefore, if you no longer require their services as the new owner, you will need to offer them a settlement agreement. Likewise, any changes to their employment contract will need to be agreed upon as you would be if you had always been the owner.
However, if you buy a business via purchasing the assets the legal status of the business changes. This is because you are transferring the assets of the business to another business. Therefore the owner, and as a result, the employer has changed.
For this type of purchase, something called TUPE (Transfer of Undertakings, Protection of Employment) is required. However, this is the responsibility of the seller, their current employer.
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