Table of Contents
In Short
- A Heads of Agreement outlines the key terms of the business sale, though it is usually non-binding.
- A Confidentiality Agreement protects sensitive information throughout the sale discussions.
- The Business Sale Agreement formalises the transaction and details the legal responsibilities of both parties.
Tips for Businesses
Before selling your business, ensure your legal documents are correctly prepared. Heads of Agreement, Confidentiality Agreements, and Business Sale Agreements are essential to secure the sale and protect your interests. Always seek expert legal advice to avoid costly mistakes.
Selling a UK business is an exciting yet challenging time. The sale of a business gives you a chance to obtain a financial reward after helping build a profitable company. However, many potential pitfalls exist when negotiating and completing a business sale. This article will consider three critical legal documents to help protect your interests when selling a UK business.
1. Heads of Agreement
Business owners use heads of agreement documentation to summarise the initial draft terms of a business sale. A heads of agreement document records the initial intentions of the parties. Therefore, it is not necessarily a legally binding document. Instead, it provides a general summary of the main points of sale, including:
- the potential buyers;
- the sale price;
- a potential completion date; and
- business assets included in the sale.
A heads of agreement is a useful document as it helps establish the potential deal between the parties early, reducing the potential for misunderstandings when negotiating the exact sale terms. In this way, the document aims to set general boundaries for future negotiations rather than constituting the end result.
2. Confidentiality Agreements
Many business owners wish business sale negotiations to remain strictly confidential. After all, many initial business sale discussions between parties fall through without a sale taking place.
Protecting the financial reputations of the relevant parties, including the company in question, is important. Accordingly, many parties agree to sign a confidentiality agreement. This is otherwise known as a non-disclosure agreement.
The negotiating parties will usually sign this document at a relatively early stage in the negotiations. The majority of confidentiality agreements seek to agree on some of the following:
- that relevant individuals cannot disclose information to other parties (other than pre-approved individuals, including lawyers and accountants);
- parties (and companies) agree to keep all information relating to negotiations and business sale discussions strictly confidential;
- no individual will mention the potential sale to any media organisation or post details of talks on social media;
- exceptions regarding disclosure will include circumstances where a party is required to do so by law (for example, to satisfy any legally binding request from a Government agency).
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3. Business Sale Agreement
A business sale agreement is the most important legal document within a business sale. This contract contains the exact terms and conditions of sale in a legally binding format. The document must have a large amount of information regarding the precise nature of the business sale.
Whilst the contents of business sale agreements will differ depending on the deal, the majority will confirm the following information:
- the formal names of the parties;
- exact purchase price;
- date of completion or date of business transfer;
- whether the purchase price is due in instalments or as a lump sum;
- details of non-physical assets (such as intellectual property rights and copyright) which will transfer to the purchasing party;
- any physical assets or shares (such as company equipment or vehicles) included in the sale;
- promises and warranties between the parties as to their conduct during the sale process; and
- confirmation of the financial consequences of any breach of the business sale agreement.
A business sale agreement should be the most important legal document within the sale process. Within any future legal dispute, a Court is likely to consider its wording strongly. Accordingly, any errors in language can be detrimental to your commercial interests. Consequently, many business sellers seek expert legal advice concerning the drafting, negotiation and completion of these documents.
LegalVision’s Buying a Business: Guide to Negotiating Terms allows you to protect yourself by understanding which key terms to negotiate when buying a business.
Key Takeaways
When selling your business, it is essential that you carefully draft the legal documents. Errors in your heads of agreement, confidentiality agreements and business sale agreements can be detrimental to your interests. The most crucial tasks include ensuring that the business sale agreement accurately reflects the actual nature of the business sale. This is vital because the wording of any business sale agreement will likely override previous verbal comments between parties.
If you need help putting legal documentation in place when selling your business, our experienced business sale lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
Many business transfers occur because the seller lists their business for sale through a business broker.
Without evidence of an effective business sale on a sale through an effective business agreement, there is a risk of remaining liability for business liabilities (such as company debts).
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