Buying a business – what you need to know

Buying a business – what you need to know

Buying an existing business can be a faster route to growth than starting from scratch, but it also means taking on commercial, legal and financial risk. Before committing to the purchase, you should understand exactly what you are buying, what liabilities may come with it, and what protections you need in the deal documents.

Decide whether you are buying assets or shares

The first major decision is the structure of the transaction. In an asset purchase, you buy selected assets such as stock, equipment, goodwill, intellectual property, customer contracts and business records. This can help limit exposure to old liabilities, but each asset, contract or lease may need to be transferred properly, and third-party consent may be required.

In a share purchase, you buy the shares in the company that owns the business. The company usually continues to hold its contracts, assets, licences and employees, which can make the handover smoother. However, you also inherit the company’s history, including tax exposure, disputes, employment issues, debts and other liabilities unless the sale agreement gives you adequate protection.

Carry out proper due diligence

Due diligence is the investigation stage. It helps you test whether the price is justified and whether there are hidden risks. You should review the accounts, management information, tax filings, bank facilities, debts, supplier and customer contracts, insurance, property arrangements, licences, intellectual property, employment records, litigation and regulatory compliance.

Where the target is a limited company, check its Companies House record carefully. Confirm the company name, number, registered office, filing history, directors, persons with significant control, charges and whether the company is active, in liquidation, dissolved or subject to strike-off action.

Understand employee issues and TUPE

If the business has employees, employment law must be considered early. In the UK, the Transfer of Undertakings (Protection of Employment) Regulations, known as TUPE, may apply where a business or part of a business transfers to a new owner. Where TUPE applies, employees usually transfer to the buyer on their existing terms and with continuity of employment preserved.

You should ask for full employee information, including contracts, salaries, benefits, holiday accrual, pension arrangements, disciplinary issues, grievances, settlement agreements, sickness absence and any threatened claims. Buyers and sellers should also plan how and when staff will be informed and consulted.

Review contracts, customers and suppliers

A business may look profitable because of a few important customers or suppliers. Check whether those relationships are secure. Key contracts may contain assignment clauses, change-of-control provisions, termination rights, exclusivity obligations, minimum purchase commitments or unusual liability provisions. If consent is needed from a landlord, customer, supplier, lender or regulator, build that into the timetable.

Check property, assets and intellectual property

If the business trades from premises, review the lease, rent, service charge, repair obligations, break clauses, rent review provisions and any dilapidations exposure. For physical assets, confirm ownership, condition, finance arrangements and whether any assets are subject to hire purchase, leasing or security. For intellectual property, check that trademarks, domain names, designs, software, copyright and branding are owned by the seller or properly licensed.

Consider price, funding and tax

The headline price is only one part of the deal. Consider whether the price will be paid in full on completion, staggered over time, linked to future performance or adjusted for stock, debt, cash or working capital. Take tax advice before agreeing the structure, as asset purchases and share purchases can have different tax consequences for both buyer and seller.

Get the documents right

Most deals start with heads of terms setting out the main commercial points, timetable and any exclusivity period. The main agreement will usually be an asset purchase agreement or a share purchase agreement. It should include warranties, indemnities, limitations on liability, completion obligations, disclosure provisions, restrictive covenants, handover arrangements and any conditions that must be satisfied before completion.

Plan completion and the first 100 days

Completion should not be treated as the end of the process. You will need a clear handover plan for bank mandates, customer communications, supplier notices, payroll, insurance, data protection, licences, website access, accounting systems, keys, stock counts and records. The first few months after completion are critical for preserving goodwill and keeping staff, customers and suppliers reassured.

Practical buyer’s checklist

• Decide whether the deal should be an asset purchase or a share purchase.
• Investigate the business thoroughly before agreeing the final price.
• Check accounts, tax, debts, contracts, employees, property, licences and intellectual property.
• Confirm what third-party consents are needed before completion.
• Agree clear warranties, indemnities and price adjustment mechanisms.
• Take legal, financial and tax advice before signing binding documents.
• Prepare a detailed post-completion handover and integration plan.