Businesses are the lifeblood of our economy and exist in an increasingly globalised world market where whole companies frequently change hands. Buying or selling a business can be an intricate and complex process which raises a number of important legal questions.
When buying or selling a business it is essential manage any risks that might lead to problems later on. There is a vast array of issues which parties should consider in order to ensure the most positive outcome of buying, or indeed selling a business.
The Due Diligence Process
Due diligence is a process whereby the buyer and its professional team can take the opportunity to review and verify available information about the target business. When either buying or selling a business the key is organisation; an experienced solicitor is particularly suited to project managing this process and one is normally appointed by each side.
The buyer should conduct wide research and ensure the transaction is fully investigated in order to reduce the risk of hidden surprises that may become apparent and hinder it later on.
Sellers must be organised in terms of filing accessible copies of all contracts, accounts, accreditations, licences and any other relevant documentation requested by the buyer.
Key Considerations in the Legal Due Diligence Process
There are a number of key factors a buyer needs to consider when buying or selling a business that affect or are included in the legal due diligence process.
- During the negotiation stage both buyers and sellers often find it useful to construct 'Head's of Terms’ which are a skeletal outline of the transaction that is non-binding in nature.
- Confidentiality agreements are also common.
- Parties may agree on an exclusivity period for a particular transaction.
- Parties must decide at an early stage whether the buyer is buying the shares or assets of the target; this is the core structure of a transaction and will affect the investigation of liabilities, shareholdings and other issues.
- Buyers will need to consider any real estate involved, especially its ownership. This is normally done by specialist property lawyers who can consider whether it is freehold or leasehold property, whether there are covenants, easements or planning permission attached, or whether there might be any potential environmental issues.
- Ownership of intellectual property rights and other non-real estate assets must be investigated.
- Employees and employment contracts are another hugely important issue which both buyer and seller should consider in the process of the transaction. Again, specialist employment lawyers normally manage this element of the investigation.
- Service contracts should also be reviewed to check for assignability and change of control provisions.
There may be many other specific legal factors that relate to particular industries or individual companies which should also be investigated.
Other Professional Due Diligence
Other important issues which should be considered by suitably qualified professionals during the due diligence process, are:
- Independent valuation of the target business.
- Transfer of pension funds.
- Asset and liability evaluation.
- Tax.
Conclusion
The complexity of buying or selling a business makes specialist legal and other professional advice essential. Rollingsons has experienced corporate lawyers who can assist you. For more information please contact James Crichton via e-mail jcrichton@rollingsons.co.uk or by telephone on 0207 611 4848.
