The Minefield of Buying and Selling a Business
Business owners looking to sell their business and buyers looking to buy a new business must be alive to the challenges buying and selling a business brings. Whilst it all might seem to be very straightforward; you might find it quickly turns into a minefield!
One of the reasons for this is that, on many occasions, the seller and buyer discuss the terms of the sale and purchase between themselves. When they do that, once they have a “deal” they contact their advisers. That is when the deal sometimes blows up in your face!
Why it’s never too early to speak to your solicitor
We strongly believe that it is essential when selling or buying a business that you speak to your solicitor as early as possible. We recommend this because it is more likely to save you time and money in the long run if your solicitor is on board from the beginning.
It is important to discuss the details of your sale with the buyer or your purchase with the seller. But it is equally important to consult your solicitor at every step of the way.
Why? The main reason is to make sure you buy the business you believe you are buying, or selling the business you own without it collapsing.
Getting the basics right
Your solicitor will discuss with you what exactly you are trying to buy or sell. They will also identify who you are buying from or selling to.
If, for instance, you decide to buy a business, what is it you are buying? Are you simply buying the business and assets or are you buying the equity in the company that owns the business and assets. This is important. If you buy the equity in the company, you get the business and assets, but you also get the liabilities of the company. This can include Corporation Tax and PAYE liabilities due to HMRC, employment claims as well as general liabilities due by the business. These can amount to many thousands of pounds you probably did not budget for. Clearly, if you are a seller, this might be the very best option for you because you will have managed to dispose of the business and the liabilities all in the one go.
What about the people?
When you buy or sell a business and there are employees involved, there are clearly challenges for either party. When you are buying, if the deal involves assuming liability for the employees, you must make sure you receive comprehensive information about each one of them. If you are selling but the buyer does not want all or any of your current employees, you will need to consult with them about redundancy. You will also need to meet the redundancy costs from the sale price you receive. This can amount to a significant chunk of the sale proceeds and must be factored in.
What about the business premises?
Are there any business premises included in the sale or purchase? If you are a seller, you may have decided to retain ownership of the premises from which your business operates and lease them to the buyer. To do that, you may need to change the ownership of the premises from your business to yourself before you can go ahead with a lease. That might lead to a Capital Gains Tax charge and will certainly add to the costs of the sale.
If you are buying a business, does the property from which the business operates come with the deal? If it does, you will need to make sure the title is checked, and that the seller has all requisite permissions to trade the business from the premises. If the business you are buying comes with a lease, you must check the terms of the lease. The lease may contain conditions which trigger on assignation. You also need to check on the repairing obligations in the lease. It can be expensive to buy a business and the lease of the premises from which it operates only to find out there are substantial dilapidations to be paid for after you have purchased. In addition, you must check when the next rent review is due and how this is likely to impact on the business.
These are just some of the premises checks you must carry out if you are buying a business along with premises.
Are there any licensing implications?
Normally, when licensing is mentioned, the immediate thought is liquor licensing. However, liquor licensing is not the only thing that is covered. Depending on the type of business, it might be subject to various different license conditions. Are these transferrable? Recently, issues have arisen relating to short-term letting businesses. These, apparently, cannot be transferred with the license in place (although short-term letting licenses are fraught with problems and none have yet to been issued). In such circumstances, the buyer needs to apply for a license and the seller cannot proceed with the sale until the license has been granted. The problem then is should the buyer renege from the deal after receiving the license, the seller would be left without a license for the business!
What about trading contracts?
There is a whole myriad of trading contracts you also must consider and whether, as a buyer, you want these transferred to you or whether you would rather negotiate these with the same or different suppliers from scratch. As a seller, you might want to transfer a lengthy trading contract so that the liability does not continue after you have sold. But, if the buyer does not want to take on the contract, will you be able to get out of it easily?
These are just some of the issues you might face when buying or selling a business. It really can be a minefield. The best advice we can give you is to consult your solicitor at the earliest opportunity. The sooner you take legal advice, the less likely it is that you will go down a cul-de-sac and spend time and money sorting out problems you’ve managed to get yourself into!
We have many years of experience dealing the sale and purchase of businesses for our clients and can advise you of the benefits and problems you might face. If you are thinking about selling or buying a business, please get in touch.get in touch