What to look out for when you are buying a business…
25 March 2019 by Andreea Brindas
If you are thinking of buying a business, there are certain principles that you should be aware of, such as the common law principle of ‘caveat emptor’ (buyer beware). This is particularly important during the due diligence process when the Seller discloses information and documentation about the business being sold (for the main steps to selling or buying a business please refer to our previous blog here…
The due diligence is an information gathering process. As a buyer, you will want to know as much information as possible about the business you are going to acquire. Why?
Firstly, you will want to know what you are actually purchasing and what the actual value of the business is. Secondly, the burden is on you as a buyer to find out everything you want or need to know about the business you are purchasing. The seller is under a duty to disclose the information, but it does not have to bring anything to your attention as a buyer.
What to look out for in a business (asset sale):
- Contracts (may include any agreements, contracts, obligation or liability of the company).
Look out for any clauses in the contract that suggest they are freely transferable or consent may be required. Why? It may be that the contract in question is an important (major) contract for the business you are acquiring. The contract may stipulate that the provider of the service or recipient (as the case may be) may terminate the contract on a ‘change of control’. This means that if you proceed with the purchase without seeking the relevant consent, the provider/recipient may be entitled to terminate the contract without liability.
- Employee details
In a business sale, the employees will transfer automatically to you (as a buyer) under the Transfer of Undertakings (Protection of Employment) Regulations (TUPE). This means that the employees will transfer under their current terms of employment and their period of continuous employment will be preserved.
It is therefore important that all the employee details (current addresses, job roles, salary, pay reviews etc) are up to date. You may ask the seller to ensure to update these details before proceeding with the acquisition.
There may be certain consents required in connection with transferable contracts (as referred to at paragraph 1 above). You may also require consent in connection with transfer of freehold properties, assigning leases etc. Again, it is very important that you obtain these consents before proceeding with the acquisition.
- Statutory books and records
It is important that the business is compliant with all the statutory requirements. Again, you may ask the seller to ensure that all the statutory books and records are up to date before proceeding with the acquisition.
It is important to check what insurance policies the company has, the premium(s) payable and the period it covers. If the period covered has expired, you may ask the seller to renew the policy before proceeding with the acquisition or may wish to make your own insurance arrangements.
- Intellectual Property Rights (IPRs)
It is important to check whether the business has any registered IPRs, whether the IPRs are registered in the business’ name or an individual, renewal dates and the possibility for the IPR to be assigned to you.
The due diligence phase is, therefore, extremely important and should be undertaken both diligently and carefully.
Our Corporate Commercial Department here at Fisher Jones Greenwood LLP can certainly guide you through the transaction and assist with review any documentation as required. Should you require any further information or assistance please do not hesitate to get in touch – call 01206 700113 or email [email protected]
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