Frequently asked questions about business and corporate law.
1. How much will it cost to sell or purchase a business?
This will depend on a range of factors. This will include the size of the business, its assets, its is staff, the services it provides, whether its held by an individual or a company and what is happening with the business premises. We'll tell you about all the associated costs, such as search fees, land tax or stamp duty. We do offer fixed fees for business sales and purchases, so you'll know what costs are involved right from the start.
2. How long will it take to sell or purchase a business?
It can take anywhere between 4 and 12 months. This really depends on how complex the transaction is. The speed of the transaction also depends on the response timescales of others involved in the transaction including lenders or landlords. We are usually able to provide you with an indication of the anticipated timescale for the transaction on our first consultation. We try hard to push deals through as soon as we can.
3. What are Heads of Terms?
Heads of Terms or Letter of Intent essentially set out the main terms of a corporate deal. The Heads of Terms will include, for example, sale price, what assets are included, who the seller and the purchaser are, and any other key terms. They may be drawn up by the selling agent, or one of the parties’ solicitors. Heads of Terms are commonly agreed and signed by both parties and can be legally binding. It is strongly advisable to seek legal advice before signing. Clauses with regard to exclusivity, legal costs etc. need to be very carefully considered and consulting one of our expert lawyers will ensure you get the best deal possible.
4. What types of business structures are available?
There are several different types of business structures available. Sole trader, limited company, an ordinary partnership, a limited partnership, a limited liability partnership or an unincorporated organisation. The different business structures will define your legal responsibilities in terms of the paperwork that must be completed (including accounts and Companies House forms), what types of taxes the business will be required to pay and determine how profits and losses will be shared. The form that we will advise your new business to take will depend on how you intend to run the business, what you are seeking to achieve and your preferences with regard to your legal responsibilities. We can advise you as to each of the options and assist you with setting up your business according to your choice. Spending some time at this stage making sure the business structure is right can often save time and money as the business develops. We will make it clear from the start what the cost will be so that you know how much to budget for legal advice.
5. What is due diligence?
Essentially this is a “fact finding” exercise about the business; its accounts, its employees, its clients, its assets and liabilities and any appropriate insurances in place. When we act for a buyer, we submit relevant and comprehensive enquiries requesting copies of all the necessary documentation, reviewing these and identifying any gaps or issues, raising further enquiries as appropriate. When we act for a seller we advise on completion of all the enquiries received from the purchaser and assist in organising and indexing the documentation which will then be referred to throughout the transaction.
6. Will the agreement for sale contain restrictive covenants?
Most purchasers want to avoid the risk that the seller immediately opens a competing business nearby after the sale has completed. Usually there will be some provision in the agreement, restricting the seller from opening or working for a competing business within a certain geographical area around the business. An agreement will also commonly contain provisions that the seller agrees not to contact existing clients or customers or poach staff for the benefit of another business. These terms are negotiated as part of the agreement for sale.
7. What are warranties and indemnities?
Warranties are designed to obtain the formal disclosure by the seller to the buyer as to the accuracy of the information provided during the due diligence process. Indemnities are promises by the seller to make good any potential losses that may be incurred by the buyer in certain circumstances. Warranties and indemnities are negotiated as terms of the Agreement. The greater amount of warranties and indemnities there are, the more the buyer will feel confident about the business they are buying and this can mean that a higher price can be negotiated.
8. What happens on exchange and completion?
On exchange of contracts, the parties become legally bound to complete the deal. A deposit towards the purchase price is usually paid to the seller’s solicitors, and this can be forfeited if the purchaser then withdraws from the transaction. On completion, legal title to the new business passes to the purchaser. The current owners of the business will resign from their positions as directors or secretaries of the business as required. The seller is entitled to receive payment for the business; this can be payment in full, or part payment where a retention is made or there is deferred payment for a commercial reason. Usually some money will be held back pending production of final accounts for the company.
9. What is a joint venture?
A joint venture is when two or more business entities or individuals combine to access or grow a particular market or set up a new undertaking or project. Entities such as partnerships, consortiums and trade alliances all fall under the Joint Venture term. A Joint Venture agreement will be drawn up to deal with terms such as the business’ objectives, how they will be achieved, financing, management and how profits will be shared.
Call our Company & Commercial team now on 0117 926 4121 or make a free online enquiry.