Buying a business is no small feat. Whether you’re an aspiring entrepreneur or adding a new business to your empire, the stakes are high. And when the deal is done, you need to be certain that you’re going to get exactly what you pay for, without any nasty surprises.
Here’s the thing:
When a business is privately owned, its affairs are exactly that: private. It’s up to you to extract the necessary information, do your due diligence and verify the facts. Sellers will, to varying degrees, co-operate and make promises that what they’re saying about their business is true. But for the most part, knowing what promises to ask for and getting them in writing, rests with you.
A good commercial solicitor will help you share that burden and minimise the risk. At Lexoo, we’ve curated a panel of solicitors who specialise in buying businesses. Many of them have worked at top commercial law firms, but have since left to set up their own boutique or ‘virtual firms’ with minimal overheads, and much lower fees. Simply tell us about your business purchase and we’ll handpick a selection of lawyers to give you multiple, fixed fee quotes within 24 hours, for free.
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When buying a business, you have two options: cherry pick the business assets you wish to buy, leaving most of the liabilities behind, which is generally the preferred option as a buyer. Or, if the target business is a company, buy all the shares from its shareholders. This option suits sellers because you’ll take on the whole company ‘warts and all’, including all its liabilities, and they (for the most part) get a clean break.
If you’re buying a business that’s a sole trader or a partnership, your only option is to buy its assets, because there are no shares to buy. However, for other types of businesses, a solicitor will look at a number of factors decide whether buying the company’s shares is the right structure for you.
They’ll look at:
Either way, it’s one of the first decisions you should negotiate and agree with the seller. Changing the structure mid-way through the deal is likely to annoy all parties (including any financiers) and cost a small fortune in extra legals.
Whether you structure your transaction as an asset or share purchase, there are a few preliminary documents that come into play when you buy a business.
It’s normal for a seller to keep the sale confidential from clients, staff, and other third parties. And if the deal doesn’t work out, the seller won’t want their company secrets made public, nor would you want your buying intentions to be revealed. Such confidentiality obligations can be written into a separate document, or can often be found in the…
The main terms of the deal are usually laid out in a framework document, called a Heads of Agreement, otherwise known as a Heads of Terms. They are often made “subject to contract”, meaning that neither party is bound by its terms, except for any confidentiality provisions or any ‘exclusivity period’ that a seller might offer you. While it’s meant to be an outline, it will still include quite a lot of detail such as price, premises, intellectual property, warranties and indemnities, earn-outs, conditions for completion and more.
Due diligence is the process of investigating the business you’re buying to unearth any hidden problems and ensure the details about the business provided by the seller are accurate. It’s especially important for share purchases because by default, you’ll be taking on all company liabilities whether you know about them or not.
At this point, your advisors (solicitor, accountant etc.) should already be on board to advise what to ask for (via a ‘due diligence questionnaire’) and to examine the information that comes back. Your lawyer will then use the responses when drafting your asset or share purchase agreement and craft specific clauses to address any issues uncovered during due diligence. You can also use it as a tool for negotiation (e.g. if you find out something which could materially affect the purchase price).
Now let’s look at each of the main transaction documents in turn:
When buying a business, your solicitor will normally prepare the first draft of the asset purchase agreement. It will detail exactly which assets you’re buying, such as stock, plant and equipment, customer and supplier contracts, business premises and intellectual property. You’ll also list out any assets you wish to exclude from the deal.
A standard asset purchase agreement will also cover:
If business premises are involved in the purchase, you might also need landlord consents, personal guarantees or a licence for early possession.
If your business purchase is structured as a purchase of company shares, the primary document you’ll negotiate is a share purchase agreement. And because you’re buying shares, it’s even more important that your solicitor drafts the first cut so they can include as many protections as possible to cover against unforeseen liabilities.
These protections will typically be extensive and will come in a variety of different legal forms, such as:
Expect these to be heavily negotiated, so having a specialist commercial solicitor on side could save you a fortune down the line and give important protection to the crucial parts of the business you're buying.
For asset purchases, a completion agenda will help you to track the practical items you’ll need to tick off when buying a business, such as:
For share purchases, don’t forget to write up board minutes for the share transfer and any other formalities.
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The typical range quoted by lawyers on Lexoo for business purchase and sale agreements is between £750 and £8,000+, depending on the size of the transaction. More specifically, for a purchase price between £10,000 to £150,000, we’ve seen prices range from £750 to £2,000. For a purchase price of £150,000 to £1.5M, prices range from £1,500 to £6,000. For a purchase price of over £1.5M, the prices quoted are usually over £8,000.
Start shopping early. It can take days or even weeks to find and hire the right commercial solicitor. Don’t wait until you’ve hashed out a ‘non-binding’ heads of terms, because some parts of it will be binding. Plus, if you hand your solicitor a heads of terms that fails to protect your interests, you’ll look like an amateur if you insist on changing the terms because your lawyer was late to the party.
Find an expert. There are commercial solicitors that specialise in buying and selling businesses – take your time to ask them: “How many businesses have you helped your clients buy? How many were in the same or similar sectors as the one I’m looking at?” Be particularly vigilant if it’s an asset sale involving property. Drill down on their property expertise or how they’ll handle this component of the transaction if they themselves don’t have the expertise.
Get a fixed fee quote. Any experienced solicitor who has completed enough business purchases can easily estimate a reasonable figure. They’ve seen it all. They know exactly what’s in and out of scope. And they’ll be able to clearly explain not only their own professional fees, but also any ‘disbursements’ such as government fees, taxes, search and filing fees that come with buying a business.
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Here’s a typical example of a client buying a business and looking for a commercial solicitor through Lexoo:
“I am buying a microbrewery and purchasing the equipment, stock, trading names and intellectual rights. We have agreed the purchase price and have a draft heads of terms. We need a solicitor to check these and the sale contract.”
Martin is a specialist business lawyer on Lexoo, who’d fit perfectly for this client. Martin started his legal career at one of the world’s leading commercial law firms, Freshfields in London, before founding his own boutique firm in 2000.
Over the last 15 years his firm has advised over 3,000 clients, specialising in working for buyers and sellers of UK businesses and entrepreneurs. While his core legal team is based in Exeter, the firm's clients, deals and engagements are scattered all across England and Wales.
You can get multiple, fixed fee quotes from specialist solicitors like Martin simply by giving us a few details about your business purchase. We’ll handpick the most suitable solicitors to quote for your job and you’ll start receiving tailored quotes within 24 hours - the service is free, give us a try!
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