Company Transactions for SMEs: Buying a business-some legal tips for the unwary

Following in our series discussing company transactions for SMEs, Consultant Alan Zeffertt looks at some legal tips for those who want to buy a business.

Structuring the deal

• Check out the assets you want to buy and structure the deal to your best advantage.  Try to cherry pick the assets you actually need for the future running of the business. Typically. These will include the lease of premises, goodwill, intellectual property rights, fixtures and fittings, equipment and stock.
• Assets or shares?  Buying shares may be more tax advantageous for the Seller but will mean you will take over responsibility for the liabilities of the company eg past debts or future tax liabilities from past trading activities.

• Capital vs Income Impact of Covid-19 may mean you need to consider future trading prospects.
• Instead of offering to pay the full purchase price on completion consider an ‘earn out’ arrangement giving the seller future compensation out of profits.
• Alternatively, consider a joint venture agreement with the buyer whereby the risks of future trading can be shared.

Due diligence

• Carefully check that you will acquire good title to the assets of the business free of any liabilities such as undisclosed hire purchase or lease contracts.
• Check key contracts with customers and suppliers to ensure they will continue dealing with you.
• Check employment contracts of key members of staff.
• Check leases of premises and look out for outstanding repairing liabilities which can be costly. Get a building survey carried out if necessary. Look out for any liability for asbestos, and compliance with fire regulations and obtain a fire risk assessment report.  These matters will become your responsibility.
• Check what licences are required to run your business eg registering your premises with the environmental health service for certain types of business.

Restrictive covenants

• Consider covenants restricting the seller from setting up a competing business, soliciting customers or key members of staff. These restrictions will need to be reasonable in order to be enforceable.

Joint venture or shareholders’ agreement

• Whatever entity you trade through, have a detailed written agreement regulating your relationship with business partners.  This would include how much investment is required from each shareholder or investor, what work or contributions each person must make and how the profits are to be distributed.
• Written service agreements or contracts of employment are usually a good idea.

Our team of expert commercial solicitors will be pleased to advise. Please contact Alan Zeffertt if you would like assistance:

 E: alan.zeffertt@anthonygold.co.uk

T: 020 7940 3950

*Disclaimer: The information on the Anthony Gold website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. It is provided without any representations or warranties, express or implied.*