Top Legal and Contractual Considerations for the Success of a Business Sale

Selling a business is not something worth undertaking without the help of seasoned professionals. It is often is a complex process that will involve accountants, solicitors, and other specialists to help enhance the negotiations for a successful transaction.

Working with a reputable lawyer from the start of the process can help simplify what would otherwise be a daunting prospect while helping you avoid blunders and maximize the returns.

Given the fact that you must contend with some legal aspects of business sale agreements, below are four crucial things worth considering that can make the process run without any hitches.

1. Structure Of The Sale

You must be confident about your reason for selling and what you are selling. Its shares that give you a percentage of ownership of the business or the company assets?

  • In the matter of shares, the interested parties can purchase the entire companies, which will include its liabilities that might not be disclosed. Furthermore, you should ensure that no essential contracts are terminated, and there is no change in administrative control.
  • In the area of assets, the interested parties can pick what they want to buy; thus, they have more flexibility in the acquisition. However, this can complicate things when it comes to the identification and transfer of certain assets. Review all contracts that the buyers must sign and assigned, making sure this is not prohibited under the agreed terms of the contract. The same thing applies to the property’s lease.

Note that the transactions might require the shareholder’s approval from either party ( you and the seller and from the buyer’s side). Conversely, it may be wise to consider involving an industry regulator that will oversee the process to ensure everything is above board.

2. Negotiation And Preliminary Agreements

The need to protect the interests of both you and the potential buyer, there is a need for you to produce several relevant agreements. Remember that the sale of a business is a highly sensitive process. Therefore, consider drawing up a confidentiality agreement, which is commonly known as a “non-disclosure agreement” with relevant terms, depending on the size and nature of the sale.

Set out the key terms of the transaction in heads of terms/term sheet. Much of what will be addressed in this is not legally binding. Nevertheless, you should not overlook any legal obligations that might inadvertently arise. Hence, this might push you to create a robust “moral commitment.”

A lock-out agreement, or better known as an “exclusivity agreement” grants the buyers an agreed window of time in which to negotiate the deal by prohibiting you as the seller from negotiating or actively seeking new prospective buyers during that period.

 3. Exercising Due Diligence

The buyer will most likely scrutinize the company’s assets and liabilities; this will be doing due diligence on their part. It will be a process that entails investigating the assets and liabilities like the premises, company staff, and your intellectual property rights (IPR).

Any prudent buyer will want to know more about your workers and their terms of employment. When the buyer is acquiring the shares in your company, he or she expects the staff to remain with the business. But in the case of asset acquisition, then the employees are likely to become part of the newly purchases assets, which happens automatically along with their amassed employment rights.

The IPS, trademarks, and brand, as well as patents, are valuable assets that the buyer will want to check and confirm you own and protect. They are assets and rights that can be transferred to the buyer once the deal is done.

What about the company property, will it be part of the sale? Yes, the premises can be part of the sale in an asset acquisition deal. However, easements and restrictions might affect the property’s value. That is why the buyer might carry out property searches, review title documents, and the planning permissions to feel confident about buying the premises. As the seller, you should compile a list of the paperwork involved and have all the documents in order at the early stages of the transaction process.

4. Legal Documentation

Expect the sale of your company to involve significant paperwork. You will need to draw up an acquisition agreement that sets out the terms that will govern the transaction. The contract will contain several provisions, as follows:

  • Warranties that serve as contractual promises you make, such as affirmation that you own all the business assets or no disputes with third parties exist. If your promises are unfounded, then the buyer can sue you for damages.
  • Indemnities that will require you to compensate the buyer for certain liabilities that arise after the sale is done. The liabilities can include environmental hazards or potential tax problems.
  • Restrictive covenants will be in place to keep you from competing with the business you sold, and this includes poaching the company’s key employees or customers.
  • Limitations of claims that could be made against you are worth including in the agreement. For instance, they can be time limits for when a claim can be brought against you, and the amount that can be claimed.
  • A disclosure letter is also essential and must be read along with the warranties. The letter will prohibit the buyer from making a warranty claim against you for something that was disclosed in the letter.

You also might want to consider including other ancillary documents like settlement agreements, service agreements, board minutes, and resignation letters.

If you are thinking of selling your business, then consider working with professionals that will offer you expert guidance on the steps to take. Contact our team of experienced legal specialists today. At Willans, we have a highly experienced multi-disciplinary team of experts across our employment, commercial, and property departments that are ready to advise you and help ensure you get the best returns and outcomes in what is a successful transaction.

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