Buying or selling a business is a significant commercial transaction involving substantial financial investment, personal risk and long-term consequences. Whether the transaction involves a share sale or an asset sale, careful legal planning is essential to protect value, manage risk and ensure the deal completes as intended.
This article outlines the key legal considerations involved in buying or selling a business in the UK and explains why early legal advice plays a critical role in achieving a successful outcome.
Understanding the structure of the transaction
One of the first and most important decisions in any business sale or acquisition is the structure of the transaction. In the UK, this will usually take the form of either a share sale or an asset sale.
In a share sale, the buyer acquires the shares in the target company and therefore takes ownership of the company itself, including its assets, liabilities and obligations. In an asset sale, the buyer acquires specific business assets and usually leaves liabilities behind with the seller, subject to agreed exceptions.
Each structure has different legal, commercial and risk implications for both parties. Sellers often prefer share sales for a clean exit, while buyers may prefer asset purchases to limit exposure to historic liabilities. Legal advice is essential to ensure that the chosen structure aligns with commercial objectives and risk appetite.
Due diligence and disclosure
Due diligence is a central feature of any business acquisition. Buyers will typically conduct legal, financial and commercial due diligence to understand the business they are acquiring and identify potential risks.
From a legal perspective, due diligence may cover areas such as corporate structure, contracts, employment matters, property, intellectual property, regulatory compliance and ongoing disputes. The outcome of due diligence often informs price negotiations, deal structure and the scope of contractual protections.
For sellers, the due diligence process is closely linked to the disclosure exercise. Sellers are required to disclose information against the warranties given in the transaction documents. Proper disclosure is critical, as failures or inaccuracies can give rise to post-completion claims.
Transaction documents and risk allocation
The principal transaction document in a business sale is the share purchase agreement or asset purchase agreement. This document sets out the terms of the transaction, including price, payment mechanics, conditions to completion and the allocation of risk between the parties.
Key risk allocation provisions typically include warranties, indemnities and limitations on liability. Warranties provide the buyer with assurances about the state of the business, while indemnities offer protection against specific known risks. Sellers will seek to limit their exposure through time limits, financial caps and exclusions.
Careful drafting and negotiation of these provisions is essential. Poorly drafted agreements can expose parties to unexpected risk or leave them without effective remedies if issues arise after completion.
Employees and TUPE considerations
Employee matters often present complex legal issues in business sales. In asset sales, the Transfer of Undertakings (Protection of Employment) Regulations may apply, resulting in employees transferring automatically to the buyer on their existing terms.
Even in share sales, employment liabilities remain with the company being acquired. Buyers must therefore understand employment risks, including potential claims, contractual obligations and pension arrangements. Early legal advice helps ensure compliance and manage risk appropriately.
Completion, post-completion and integration
Completion mechanics must be carefully managed to ensure that ownership transfers correctly and that funds, documents and control pass as intended. Post-completion obligations may include restrictive covenants, deferred consideration arrangements or ongoing transitional arrangements between buyer and seller.
For buyers, post-completion integration is often where commercial value is realised. Legal advice can assist in ensuring that governance, contracts and structures support effective integration following completion.
The importance of early legal advice
Business sales and acquisitions involve multiple moving parts and competing interests. Early involvement of experienced corporate solicitors allows issues to be identified and addressed before they become obstacles to completion.
Legal advisers play a key role in structuring the transaction, managing risk, coordinating with other professional advisers and ensuring that the transaction progresses efficiently.
How we can help
We advise buyers, sellers, management teams and investors on business acquisitions and disposals across a wide range of sectors. Our work includes advising on transaction structure, due diligence, negotiation of transaction documents and post-completion matters.
Our approach is practical and commercially focused. We work closely with clients to understand their objectives and provide clear advice throughout the transaction process.
If you are considering buying or selling a business, or would like to discuss a potential transaction, please contact us to arrange an initial discussion.
Frequently Asked Questions on Buying or Selling a Business
What is the difference between a share sale and an asset sale
In a share sale, the buyer acquires the shares in the company and therefore takes ownership of the company as a whole, including its assets and liabilities. In an asset sale, the buyer acquires specific business assets and usually leaves liabilities with the seller, subject to what is agreed in the transaction documents. Each structure has different risk and tax implications and should be considered carefully.
Which structure is better when selling a business
There is no single answer. Sellers often prefer share sales because they offer a clean exit and may be more tax efficient. Buyers may prefer asset sales to limit exposure to historic liabilities. The most appropriate structure depends on the business, the parties involved and commercial priorities.
What is due diligence and why is it important
Due diligence is the process by which a buyer investigates the business it intends to acquire. Legal due diligence typically covers areas such as contracts, employment, property, intellectual property and regulatory compliance. It allows buyers to identify risk and informs price, deal structure and contractual protections.
What are warranties and indemnities
Warranties are contractual statements given by the seller about the condition of the business. If a warranty is untrue, the buyer may have a claim. Indemnities provide protection against specific identified risks and usually offer a pound for pound recovery. Both play a key role in allocating risk between the parties.
Can a buyer bring a claim after completion
Yes, buyers may bring claims after completion if warranties are breached or indemnities are triggered, subject to the terms of the agreement. Claims are often subject to time limits, financial caps and procedural requirements, making careful drafting essential.
Do employees automatically transfer when a business is sold
In asset sales, employees may transfer automatically under TUPE, preserving their existing rights. In share sales, employees remain employed by the same company, but employment liabilities transfer with ownership of the shares. Employee issues should be addressed early in the transaction.
How long does a business sale or acquisition take
The timetable varies depending on the size and complexity of the transaction, the level of due diligence required and whether third party consents are needed. Straightforward transactions may complete in a few weeks, while more complex deals can take several months.
When should a solicitor be instructed
A solicitor should be instructed as early as possible, ideally before heads of terms are agreed. Early legal input helps shape deal structure, manage risk and avoid issues that can delay or derail the transaction.
Do I need heads of terms
Heads of terms are not legally binding in most respects, but they set the commercial framework for the deal. Properly drafted heads of terms can reduce uncertainty, manage expectations and help transactions progress more smoothly. to management structure. Regular review helps ensure that the agreement remains fit for purpose.