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How to Exit the Industry: The Legal Fundamentals of a Sale

4th November 2019

Following the success of our recent adviser retirement event: How to Exit the Industry, we will be publishing a series of informative blogs based on the talks by each of our speakers. Up first we have a summary of the very informative talk given by Ed Schofield from Cook Corporate Solicitors. Ed discussed the Legal Fundamentals of a Sale, keep reading for an insight into the process from a legal point of view.

Appointing a solicitor

First things first, when you are considering putting your business on the market the most important thing to do is talk to your solicitor and obtain his or her advice on what type of approach would be best to handle the full or partial sale of your business as well as discussing any potential future liabilities and how you can appropriately deal with them.

Asset Purchase or Share Purchase?

What is most appropriate for your business? The initial discussion with your solicitor should revolve around laying out the fundamentals of what you and/or your company does, who the proposed buyer might be and, ideally, what you are hoping to gain from the sale of your business.  If you are a sole trader, then you will be looking at an Asset Purchase governed by an ‘Asset Purchase Agreement’ (APA), whereas if you are an LLP/limited company then you also have the option of a Share Purchase sale ‘Share Purchase Agreement’ (SPA). 

Share Purchase vs Asset Purchase

For LLPs and limited companies, deciding on which approach to take from the above wholly depends on what the seller/buyer is trying to achieve and any tax implications that may arise.  With any major APAs or SPAs it is always advisable to speak with your accountants and sometimes a tax specialist to ensure that you are not incurring any unnecessary tax charges.

Heads of Terms Agreement/Memorandum

 If they do not provide you with one, then ask any interested buyer to provide you with a non-disclosure agreement (NDA), this ought to prevent any confidential information or market sensitive matters being released to the public. Following initial discussions with your proposed buyer if you have accepted an offer or you are very close to this then the buyer will provide you with a Heads of Terms Agreement. This sets out the key terms of the proposed acquisition and should include all of the key points that the buyer and seller have discussed. Although not legally binding, upon signing the document it enforces to either side that the deal is going ahead. It will usually contain an exchange and completion date for the parties to work towards.

Legal Due Diligence

Once you have agreed on Heads of Terms the buyer will start the due diligence process to ensure they understand your business and can proceed with the purchase. The due diligence process is a fundamental part of either a SPA or APA agreement. It provides the basis of the warranties provided in the agreement.  It is the buyer’s responsibility to conduct its own investigation into the acquisition. Due diligence is there initially to give the buyer a degree of comfort about what it is buying and how much it might be worth. The purpose of due diligence is to investigate or confirm what the buyer is acquiring is what they expected.  This means that the buyer will be investigating if the material legal contracts, assets, licenses and permits, compliance history, intellectual property rights, employees and business practices of the business and any potential challenges are all in order and as they should be. 

Traditionally, the buyer’s solicitors will draw up a due diligence questionnaire which initiates the due diligence process. The information requested within the questionnaire will need to be provided by you with assistance from your solicitor. Once the due diligence process has been completed, you may be advised by your solicitor to produce a ‘disclosure letter’ to offer you a level of protection against the risk of post completion complaints raised by the buyer.

The due diligence process can take quite some time. After a chunk of paperwork, if the buyer is happy with the due diligence it will be time to exchange and complete. This formalises the sale. The buyer now owns the assets or company and, hopefully, you will now be in receipt of some consideration!

The journey to completion will look different for everyone depending on your business and what you would like from the sale. For more information about retirement and how to exit the industry, click here.

Don’t forget, we will be releasing a series of blogs covering different aspects of retirement including the tax implications of a sale and a real-life case study, so keep your eyes peeled!


 

About Cook Corporate solicitors

Cook Corporate is a boutique firm of solicitors specialising in corporate, commercial and employment law.  The firm works closely with business owners and entrepreneurs to provide heavyweight, robust, commercial advice and to add value to their businesses and transactions.

To find out more about Cook Corporate solicitors, please click here.

To find out more about Ed Schofield, please click here.