Buying or selling a business is one of the most significant financial transactions an owner will undertake. Whether structured as a share sale or an asset sale, the transaction must be carefully managed to protect value and minimise risk.
Preparation is critical. Sellers should ensure financial records are accurate, contracts are up to date, and any disputes or liabilities are identified early. Buyers must undertake comprehensive due diligence to understand precisely what is being acquired.
Heads of terms are usually agreed at an early stage. Although often non binding, they establish the commercial framework including price, payment terms, exclusivity, and conditions precedent.
Asset Sale or Share Sale
The structure of the transaction determines legal and tax consequences.
In a share sale, the buyer acquires shares in the company and therefore takes on all assets and liabilities. In an asset sale, the buyer acquires specific business assets, and liabilities must be expressly transferred.
Each structure has implications for tax, employee rights under the Transfer of Undertakings regulations, property arrangements, and contractual assignments.
Buyers typically prefer asset purchases to avoid historic liabilities. Sellers may prefer share sales for tax efficiency and simplicity. Careful legal structuring can reconcile competing priorities.
Due Diligence and Legal Risk
Due diligence is a detailed investigation of the target business. It covers financial performance, contractual obligations, employment liabilities, regulatory compliance, intellectual property, and property interests.
Common risk areas include undisclosed liabilities, poorly drafted contracts, employment claims, and tax exposures. Warranties and indemnities in the sale agreement allocate risk between buyer and seller.
Key areas reviewed during due diligence often include:
• Commercial contracts and termination clauses
• Lease terms and property obligations
• Employment contracts and potential claims
• Regulatory compliance and licences
• Outstanding litigation or disputes
Failure to conduct thorough due diligence can result in costly post completion disputes. Legal advisors coordinate the investigation, raise targeted enquiries, and negotiate protections within the sale agreement.
Tax planning is also central. Business Asset Disposal Relief may reduce Capital Gains Tax on qualifying disposals where statutory conditions are met. Early advice ensures eligibility criteria are satisfied.
Completing the Transaction
Once due diligence is complete and documentation finalised, the transaction proceeds to completion. This may involve transferring shares, novating contracts, updating Companies House records, and satisfying conditions precedent.
Post completion obligations may include deferred payments, earn out arrangements, or transitional support from the seller.
Professional legal support ensures compliance with statutory requirements and protects your commercial position throughout.
Whether you are acquiring a competitor, planning retirement, or restructuring ownership, expert guidance reduces risk and preserves value.
Penerley supports buyers and sellers across England and Wales with strategic commercial advice and meticulous transaction management. Contact us today to discuss your proposed transaction and secure experienced legal support from heads of terms to completion.
