There is a massive difference between going to work everyday as an employee and taking those steps to buy a business and owns the keys to the company. This process requires deep thought, a long-term commitment and thorough planning on both a practical and financial level. Whichever type of business you wish to acquire, in whatever sector, the best approach is to take legal advice from business specialists as early as possible, having expert legal guidance on your side throughout the entire process. There are many different scenarios and potential obstacles in your way when buying a business so it really does pay to be fully prepared for all eventualities and have industry and legal knowledge to back you up.
Legally, there are a few different elements to buying a business that you need to be aware of before beginning the transaction.
The Structure of the Business and Purchase Process
In the first instance it is important to understand the type of business that you are purchasing and its current structure. Once the sale process is under way there are a few documents and processes that are vital to a successful completion, and that you need to fully appreciate and understand as the future owner of the business.
Heads of Agreement – This document is designed to clearly display the principal issues relating to the financial, commercial and legal aspects of the transaction. It is not a legally binding agreement, but more of a starting point, and it usually does include certain provisions relating to confidentiality agreements etc. that are viewed as legally binding. Before negotiating a Heads of Agreement it is important to gain the advice of legal representative.
Due Diligence – Once the Heads of Agreement has been put in place due diligence allows the buyer to dig a little deeper into the information provided by the seller relating to current legal, contractual and financial risks and how that might affect the business moving forward.
Sale and Purchase Agreement – If due diligence hasn’t brought up any glaring issues that need to be addressed the sale and purchase agreement is the main legal document that states the legal obligations of both parties. This document will include the warranties provided by the seller and can related to many different areas of the business, such as the condition of the business and any assets, the number of employees, accounts and tax, as well as the current and projected profitability.
Disclosure Letter – If there are certain parts of the business that will be affected by the sale of the business, such as the loss of key contracts or suppliers, or any existing disputes with customers, the seller should offer a disclosure letter alongside the sale and purchase agreement that clearly states and explains these conditions. It is an important part of the sale process to protect the seller from future legal action from the buyer relating to issues they knew nothing about prior to the completion of purchase.
Buying a business is a massive commitment so be sure to have sound legal advice throughout the entire process to ensure that you are not caught out with any surprises further down the line.