Summary
- Buying a care business in England involves complex legal, regulatory, and commercial considerations that can significantly affect how the transaction is structured and how the business operates after completion.
- Buyers must choose between a share purchase and an asset purchase, each carrying different implications for liability, taxation, and Care Quality Commission registration requirements.
- Thorough due diligence, appropriate contractual protections, and careful regulatory planning are essential to managing risk and ensuring a smooth transition.
- This article is a plain-English guide to the key legal considerations for business owners buying a care business in England, produced by LegalVision, a commercial law firm.
- LegalVision specialises in advising clients on business acquisitions, regulatory compliance, and employment law in the care sector.
Tips for Businesses
Clarify your transaction structure early, as this affects regulatory timelines and liability exposure. Commission thorough due diligence covering CQC registration, employment, and property matters. Build regulatory approval periods into your timetable. Ensure your sale contract includes warranties, indemnities, and restrictive covenants to protect the business after completion.
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Acquiring a care business can be an attractive investment given the UK’s growing demand for care services. However, the sector is heavily regulated, requiring buyers to carefully manage legal and commercial risks. This article outlines the key legal considerations when purchasing a care business in England.
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 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.
Buying a business? Download this free guide to help you negotiate key terms like price, stock, and employee entitlements.
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.
LegalVision provides ongoing legal support for businesses through our fixed-fee legal membership. Our experienced business lawyers help businesses manage contracts, employment law, disputes, intellectual property, and more, with unlimited access to specialist lawyers for a fixed monthly fee. To learn more about LegalVision’s legal membership, call 0808 196 8584 or visit our membership page.
Frequently Asked Questions
What is the difference between a share purchase and an asset purchase?
A share purchase involves buying all of the shares in a company and as a result the company and its liabilities, whilst an asset purchase involves buying specific assets and usually requires new Care Quality Commission registration.
Why should I take legal advice when buying a care business?
Care businesses operate under strict regulation and purchases thereby give rise to sensitive and complex issues. Legal advice can help support buyers with managing regulatory approvals, handling staff transfers, addressing contractual risk, and supporting the lawful operation after completion.
What are restrictive covenants in a care business sale?
Restrictive covenants prevent sellers from competing with the business or poaching staff and residents after completion. Buyers typically include these in the sale contract to protect the goodwill and value of the business they have acquired.
What liabilities does a buyer inherit in a share purchase?
In a share purchase, the buyer acquires all existing and historic liabilities of the company, including regulatory breaches, employment claims, tax exposure, and data protection failures – even those that only emerge after completion.
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