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Archive for May, 2011

Selling Your Business? Then First Follow These Simple Rules.

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Rupert Wright, a corporate services lawyer with Charles Lucas & Marshall explains why it is important to check out a few house rules before selling or buying a business.

As the economy emerges from recession, owners of businesses should be giving more thought to possible exit routes for their business and, in the case of buyers, seeing whether they can enhance their existing business by finding suitable opportunities to expand their operations or diversify into new businesses.

For sellers it is imperative they ensure that all key documentation is in place prior to a sale.  Now is a very good time for existing businesses to review all commercial contracts with key customers and suppliers.  Business owners should ensure that all its logos are protected by trade mark.  In particular, protection of brand names and other intellectual property rights should be reviewed.  In the case of incorporated companies, statutory books should be updated and accounts reviewed so that clean accounts can be shown to potential buyers.  Employment contracts should also be updated.

Once a seller has identified a suitable potential buyer, non-disclosure agreements should be considered to ensure that buyers are not embarking on a ‘fishing expedition’ with potential competitors to obtain confidential information.  Heads of agreement will need to be considered with binding provisions relating to exclusivity and confidential information.  The heads of agreement will also set out the key terms agreed.

In the case of a limited company, one fundamental issue to assess from the start is whether the proposed sale is to be a sale of shares or a sale of assets.  If the shares constituting the company are transferred, then the buyer acquires the company and all the underlying assets and liabilities go with it.  By contrast, in an assets acquisition, the individual assets and liabilities to be transferred will need to be identified and agreed.

As a general rule, a seller of a limited company would favour a sale of shares since the buyer would take over all liabilities, hidden or otherwise.  However, a buyer would favour a purchase of assets since there would be a clean break from the business and only identifiable assets will be purchased and the potential historical baggage of the company would not be taken over.  This is not always the case.  Commercial or tax issues are often an important deciding factor, whether the purchase is to be by way of sale of shares or assets.

In summary, at this stage in the business cycle, owners of businesses and potential acquirers should be contacting their corporate legal advisers to ensure, in the case of sellers, that all key contracts are in place and that intellectual property rights are fully protected.  In the case of buyers, specialist corporate lawyers will be required to advise on all aspects of the acquisition and, in particular, to advise whether the purchase should be by way of shares or assets where a limited company is involved.

For further information contact Rupert Wright on 01635 521212 or e-mail

Written by Rupert Wright

May 31st, 2011 at 11:48 am

Posted in News