Summary
- A share purchase keeps the CQC registration in place, while an asset purchase requires the buyer to obtain a new registration before operating the service.
- A share purchase transfers every historic liability of the company, so due diligence and warranties carry the protection.
- The registered manager’s registration attaches to the provider, so an asset purchase requires a fresh application for the manager as well.
- This article explains the key legal considerations for business leaders buying a care business in England.
- LegalVision’s business sale and purchase lawyers advise buyers on choosing between a share and asset purchase, CQC registration timing, TUPE obligations on a staff transfer, and warranties covering historic regulatory breaches.
Tips for Businesses
Read every CQC inspection report, enforcement notice and safeguarding investigation before you price the deal. Build the CQC registration period into the completion timetable, since an asset purchase cannot trade until the CQC grants registration. Check whether local authority contracts need consent to transfer. Speak to a business sale and purchase lawyer at LegalVision about keeping the registered manager in place through completion.
On this page
- Initial Considerations and Planning
- Share Purchase or Asset Purchase
- Due Diligence and Risk Management
- Employment and TUPE Issues
- The Registered Manager and Continuity of Registration
- The Sale Contract
- Regulatory and Compliance Issues in Care Business Purchases
- Why Should You Take Legal Advice on Your Purchase?
- Key Takeaways
- Frequently Asked Questions
Buying a care business in England means buying a regulated service. The Health and Social Care Act 2008 requires the Care Quality Commission to register every provider of a regulated activity. The deal structure decides what happens to that registration. In a share purchase the company continues, so the registration continues and the buyer notifies the CQC of the change in control. In an asset purchase the buyer must obtain a new registration before operating the service. Operating without registration is a criminal offence. A share purchase also carries every historic liability of the company, from regulatory breaches to employment claims.
This article explains how to choose between a share purchase and an asset purchase for a care business in England, what due diligence should cover, how TUPE applies, and how to protect continuity of the registered manager.
Buying a business? Download this free guide to help you negotiate key terms like price, stock, and employee entitlements.
Initial Considerations and Planning
Before negotiations begin, buyers should be clear about what they are buying and how much they are prepared to pay. They should also consider how the price will be paid whether in full on completion or with deferred or performance-related elements.
Sellers often require a confidentiality agreement before sharing sensitive information. The parties may also agree on heads of terms and a period of exclusivity.
Share Purchase or Asset Purchase
One of the most important structural decisions is whether the buyer will acquire shares in the company or purchase assets. This decision has considerable consequences for matters such as liability, tax, and transaction formalities.
Share Purchases
In a share purchase, the buyer acquires the shares in the company that operates the care business. The company carries on as the same legal entity. This means its care services agreements, employment contracts, and supplier arrangements will usually remain in place without the need for assignment.
However, the buyer also acquires all existing and historic liabilities of the company. These may include known issues as well as risks that only emerge after completion, such as historic regulatory breaches, employment claims, tax exposure, or data protection failures.
Asset Purchases
In an asset purchase, the buyer acquires specific assets, which may include property interests, goodwill, contracts, and staff. Liabilities will generally remain with the seller – which can reduce exposure to historic issues.
In most cases, the buyer must obtain a new Care Quality Commission registration before operating the care service. The business must not trade until registration is granted, and the registration process can take several months. Buyers should therefore factor regulatory timing into the transaction structure and plan the transaction timetable accordingly.
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Due Diligence and Risk Management
Due diligence allows buyers to assess the target business before proceeding with a purchase. It helps buyers to identify legal and operational risks, decide on the deal value, and consider the sale terms to build in appropriate protection.
For care businesses, buyers should also review CQC registrations, inspection reports, enforcement action and safeguarding investigations. This also includes operational risks, such as:
- premises;
- staffing;
- policies;
- medication management; and
- equipment maintenance to ensure continuity of care after completion.
Employment and TUPE Issues
Employment matters form a key part of due diligence. Buyers should identify key staff, including the registered manager, verify qualifications, right-to-work compliance and pension arrangements. In asset purchases, the Transfer of Undertakings (Protection of Employment) Regulations 2006 will apply where there are employees in the business.
Where TUPE applies, employees assigned to the business must transfer to the buyer on their existing terms, and the buyer assumes responsibility for employment liabilities. Buyers must comply with TUPE information and consultation obligations.
The Registered Manager and Continuity of Registration
CQC registration has two parts. The regulator registers the provider, and for most services it also registers a manager for each location. A service that operates without a registered manager breaches its conditions of registration. That breach appears on the next inspection report.
A registered manager’s registration attaches to a named provider and location. In a share purchase the provider does not change, so the registration continues. In an asset purchase the provider does change, so the manager must register again with the new provider. Build that application into the timetable alongside the provider registration.
Identify the registered manager in the first week of due diligence. Ask directly whether they intend to stay after completion, and record the answer. Consider a retention payment or a new contract that runs past the transition period. Check that the seller’s restrictive covenants stop them recruiting the manager back after completion. Confirm the nominated individual as well, since the provider must name one and notify the CQC of any change. Losing the manager on completion day costs more than any warranty recovers. The due diligence process should treat key people as a regulatory issue, not only an employment one.
The Sale Contract
The transaction should be documented in a legally binding sales contract agreement, usually a share purchase agreement or an asset purchase agreement. This contract sets out the following:
- what is being sold;
- the purchase price;
- how payment will be made; and
- any conditions that must be satisfied before completion.
The contract should address all required consents and approvals, including:
- regulatory approvals;
- lender requirements;
- third-party consents; and
- TUPE obligations.
It should also clearly set out the completion process, including payments, documents, and notifications.
Regulatory and Compliance Issues in Care Business Purchases
Under the Health and Social Care Act 2008, Care businesses in England are regulated by the Care Quality Commission (CQC), making regulatory compliance a key issue in any transaction.
In a share purchase, the buyer must notify the CQC of changes in ownership or control, but no new registration is required. In an asset purchase, the buyer must obtain CQC registration before operating the service, as operating without registration is a criminal offence.
Buyers should allow sufficient time for regulatory approvals and carry out due diligence on data protection and safeguarding compliance, including:
- care records;
- incident reporting; and
- safeguarding procedures.
Why Should You Take Legal Advice on Your Purchase?
Buying a care business entails important legal issues that affect how the transaction is structured, how risks and liabilities are allocated, and whether the business can operate smoothly after completion.
“Buyers spend weeks on the warranties and about ten minutes on the registered manager, which is the wrong way round. A care business without a registered manager is a building full of staff you cannot lawfully operate, and no indemnity fixes that on the Monday after completion. Ask the manager directly whether they are staying, early, and plan for the answer being no.”
Key Takeaways
Buying a care business involves highly complex and sensitive issues that call for careful planning. Legal, operational and regulatory considerations are all relevant and can have a significant consequence on both the deal process and the ongoing operation of the business.
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Frequently Asked Questions
What is the difference between a share purchase and an asset purchase?
In a share purchase you buy the company, so contracts, staff and the CQC registration continue, and you inherit the company’s liabilities. In an asset purchase you buy specific assets, liabilities usually stay with the seller, and you need a new CQC registration.
Why should I take legal advice when buying a care business?
Care businesses operate under strict regulation, so a purchase raises sensitive and complex issues. A corporate solicitor helps you manage regulatory approvals, handle staff transfers under TUPE, allocate contractual risk, and keep the service operating lawfully after completion.
What are restrictive covenants in a care business sale?
Restrictive covenants stop the seller competing with the business or poaching staff and residents after completion. Buyers include them in the sale contract to protect the goodwill they paid for. Extend them to cover the registered manager, whose departure can jeopardise the registration.
What liabilities does a buyer inherit in a share purchase?
A share purchase transfers every existing and historic liability of the company. That includes regulatory breaches, employment claims, tax exposure and data protection failures, including problems that surface only after completion. Warranties and indemnities in the share purchase agreement allocate that risk.
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