{"id":1069,"date":"2021-12-30T02:29:15","date_gmt":"2021-12-30T02:29:15","guid":{"rendered":"https:\/\/uk.legalvision.com.au\/?p=1069"},"modified":"2022-06-16T01:12:42","modified_gmt":"2022-06-16T00:12:42","slug":"due-diligence-business-sale-england-wales","status":"publish","type":"post","link":"https:\/\/legalvision.co.uk\/business-sale-purchase\/due-diligence-business-sale-england-wales\/","title":{"rendered":"Due Diligence in a Business Sale in England and Wales"},"content":{"rendered":"\n

The term ‘due diligence’ refers to the process through which a buyer will review the information provided by the seller. In many ways, it is essentially a comprehensive and rigorous type of research, which occurs as part of the acquisition process<\/a> before you finalise the deal. Due diligence in a business sale is highly valuable to the buyer because it gives them an insight into how the business is performing. <\/span><\/p>\n\n\n\n

As the seller of a business, you must participate in the due diligence process. This article will detail what due diligence might look like if you are selling your business and then offer guidance on preparing for the due diligence process. <\/span><\/p>\n\n\n\n

What Does Due Diligence Look Like?<\/span><\/h2>\n\n\n\n

While due diligence is one process, there are two types of due diligence: legal and commercial.<\/span><\/p>\n\n\n\n

Legal Due Diligence<\/h3>\n\n\n\n

Legal due diligence will involve inquiries into the legal aspects of your business. <\/span><\/p>\n\n\n\n

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For example, the buyer might want to make sure that you have legal title to sell. If you do not have legal title, you cannot fully transfer ownership to the buyer. <\/span>Further, the buyer will want to know all of the business’ assets and liabilities, particularly in an asset sale. Assets include physical properties such as land and stock as well as intellectual property. <\/span><\/p>\n<\/div>\n\n\n\n

If the sale is a share sale, the buyer will want to know the company’s constitution. The company’s constitution refers to the company’s internal governing document and will include how share capital has been issued to shareholders. <\/span>Similarly, a prospective buyer will want to know any disputes or litigation your company is part of. This is important as it will inform the buyer of potential legal risks in acquiring your business. It will also influence the purchase price of your business. <\/span><\/p>\n\n\n\n

Financial Due Diligence<\/h3>\n\n\n\n

Financial due diligence refers to the process of checking numbers and making sure there are no hidden financial issues. This might happen through the buyer’s legal team or accountants getting in touch about your business’s financial statements. Financial statements can outline valuable financial information, such as checking tax history. This might also link with legal due diligence because it may identify potential issues that can be disputed with HM Revenue and Customs<\/a> (HMRC). <\/span><\/p>\n\n\n\n

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The buyer may also want to check the market of its target business. They can do this by checking competitors and relevant regulations. However, this part of the due diligence process falls on the buyer and not you. <\/span><\/p>\n<\/div>\n\n\n\n

How to Prepare for Due Diligence<\/span><\/h2>\n\n\n\n

Firstly, you should prepare for the buyer to want to review all material records of your business. Generally, this will include financial statements, sales records, employment contracts, equipment hire contracts, and records of your assets and liabilities. Therefore, it is good to have these documents ready to transfer to the potential buyer.<\/span><\/p>\n\n\n\n

Often, however, some of the material records will be sensitive information. If you identify some documents as including sensitive information, you should enter into a non-disclosure agreement<\/a> (NDA) with the potential buyer. A non-disclosure agreement is an agreement that restricts what the other party can do with the information that you give them. For example, a non-disclosure agreement may include clauses that specify what will happen if the:<\/span><\/p>\n\n\n\n