Search

How can we help?

Icon

The practicalities of selling your business

The importance of non-disclosure and confidentiality agreements

Once a seller has made the decision to sell, entering into a confidentiality agreement or non-disclosure agreement at early stage is advised. These agreements seek to ensure that any information that the buyer discloses during negotiations remains confidential and to protect trade secrets. It is best practice to take legal advice on the detail contained in the agreement to ensure validity – defining confidential information too broadly can impact its enforceability.

Due Diligence   

The buyer has now confirmed its decision to buy the business and the seller has agreed to sell. heads of terms have been exchanged and it is time for the seller to conduct a due diligence exercise. The purpose of due diligence is to reassure the buyer that financial, operational  and legal processes have been complied with and to identify if there are any areas which need to be addressed or which may impact the buyer’s decision to proceed.

The due diligence exercise takes time. It is recommended for a seller, even before identifying a buyer, to start this process as early as possible.   Critical evaluation of the business from a very early point gives the sellers time to identify and make good any issues prior to buyer involvement and will help deliver a smooth path to completion.  Typical areas to consider by any seller, would include:

  • Are the company’s financial budgets and forecast’s up to date?
  • Is the corporate record up to date?
  • Is all intellectual property owned and held by the company?
  • Are all staff handbooks, policies, procedures up to date? Do all staff have contracts of employment?
  • Have all key customers signed contracts? Are issues such as change of control provisions (which are triggered on a sale giving the customer the right to terminate or re-negotiate) understood?

Purchase Agreement

The purchase agreement will either be an asset purchase agreement or a share purchase agreement. An asset purchase is where the seller sells their business as a going concern by allowing the buyer to purchase certain assets, usually the goodwill and undertaking. A share purchase agreement is one where the transaction comprises the whole issued share capital of a company, i.e the buyer steps into the shoes of the seller and takes on inherent liability, such as accounting, tax and historic trading liabilities.

Regardless of the transaction taking the form of an asset or share sale, both sale contracts follow a similar format.   Parties are named and payment process structured.  Either document will then comprise substantial warranties and representations.   Points to consider when negotiating these include:

  • Is payment going to be deferred? If so, how will this be safeguarded against a restructuring or an insolvency? Are third party guarantees required?
  • When should indemnities be offered? Are you clear on the differences between indemnifying and warranting a particular point?
  • Does the agreement contain appropriate limitations of liability clauses in respect of the warranties and indemnities required of the buyer?
  • How will the sellers’ future plans be impacted by the restrictions that the buyer will want to impose on the seller to protect the goodwill of the business that has just been bought?
Jacob Montague

Senior Solicitor

View profile

+44 118 960 4613

Once a seller has made the decision to sell, entering into a confidentiality agreement or non-disclosure agreement at early stage is advised.

Disclosure

The disclosure letter gives the seller the opportunity to qualify further, liability which could arise under the warranties or indemnities.  Often, if the due diligence exercise is systematic and well organised specific issues for disclosure in the due diligence data room can be cross referenced, making the disclosure process simpler.

Post Completion

Once the excitement of completion has passed, it is very easy to move on and forget about any post completion requirements contained in the purchase agreement.  Make sure that you are clear on who within the team will take responsibility for filing documentation, writing up registers and that any other matters, are dealt with and when this will happen.  Ensure any deferred payment dates are diarised so that they are not missed.

Summary of selling your business

The key to a streamlined sales process is organisation and preparation.  If you are thinking of selling your business, speak to a selection of advisers as early as possible to build your team in readiness.  Carry out a critical review of operational, legal and finance element of the business in readiness of due diligence to identify any issues that could disrupt the buyers’ process.  The sales process takes time and of course you will need to ensure the business is being run as normal – any sale process is a busy time for the seller and management teams.

About this article

Disclaimer
This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full General Notices on our website.

Jacob Montague

Senior Solicitor

View profile

+44 118 960 4613

About this article

Read, listen and watch our latest insights

art
  • 12 June 2024
  • Privacy and Data Protection

UK data protection: Important basics

Sometimes, data protection can seem like unhelpful red tape. At other times, it is critical to cultivating a trustworthy reputation.

art
  • 11 June 2024
  • Immigration

UK Immigration Roundup – May to June 2024

As the UK approaches the upcoming general election, immigration remains a focal issue in political discussions. The Conservative party’s recent proposal to cap visas for skilled migrant workers has alarmed various industries who are concerned that a limit to migration could harm vital sectors of the UK economy.

Pub
  • 06 June 2024
  • Employment

Talking Employment Law: What does the new Worker Protection Act 2023 mean for employers?

In this podcast, Lucy Densham Brown and Shauna Jones, members of the employment team, will review the new Worker Protection Act 2023 and provide some guidance on how employers should review their policies in preparation for October.

art
  • 03 June 2024
  • Commercial Real Estate

Sustainability and commercial property: green leases  

Climate change is considered by many the biggest threat we are facing today. With the UK said to have one of the oldest housing/building stocks, the focus on a building’s environmental performance and sustainability has never been more critical.

art
  • 03 June 2024
  • Employment

Using AI technologies in recruitment: is it fair and transparent?

In a rapidly evolving digital landscape, where artificial intelligence (AI) plays an increasingly pivotal role in HR and recruitment processes, ensuring responsible and ethical implementation is paramount.

Pub
  • 03 June 2024
  • Employment

Navigating the Labour Party’s New Deal for Working People: Legal implications and opportunities

Join Monica Atwal and Amanda Glover, for this in-person seminar on ‘Navigating the Labour Party’s New Deal for Working People: Legal Implications and Opportunities’ at our Reading office on Thursday, 20th June.