Buying, selling or merging your business - what you need to know
Buying or selling a business can be a complicated matter, with a lot of inherent risks. We advise companies, public entities, private equity, management teams, partnerships, LLPs and individuals who are looking to buy or sell a business or shares in a company. We also support management teams on management buy-outs and buy-ins; and insolvency practitioners on distressed asset and company sales.
There are broadly two ways in which a buyer can acquire a business:
- a share purchase where the buyer buys the shares of the company which carries on the business; or
- an asset purchase where the buyer buys the assets and rights of the business from the company, individual or partnership that own them.
Both structures achieve the objective of the buyer gaining control of the business however, there are fundamental differences between the two.
A share purchase is only available where the target business operates out of a company structure. In a share purchase the buyer acquires the entire corporate entity - both the assets and the liabilities - and assumes responsibility for the entire company ‘warts and all’. Accordingly there is typically far more legal due diligence required for a share purchase compared with an asset purchase.
With an asset purchase the issue of exactly which assets, rights and liabilities will transfer to the buyer will be a matter for the parties to negotiate. A buyer with a strong negotiating position will effectively be able to cherry-pick the assets they wish to take on and leave behind those that they don’t want. As the buyer tends to leave the seller with any undesirable assets or liabilities, together with any unidentified liabilities, the level of due diligence required tends to be lower.
Tax treatments are important
The differing tax treatment of the two structures is usually the primary driver in deciding which approach is the best one to take. The availability of entrepreneurs’ relief and rollover relief; along with the absence of the potential opportunity for a double tax charge which can arise on an asset sale (once on the gain made from the sale of the assets and again when the sale proceeds are distributed), will often make a share sale the more appealing option for the seller.
We collaborate closely with our client’s tax advisors and accountants in order to provide a seamless, integrated service that provides the most tax-advantageous approach; whether it’s acting for an expanding business or advising on exit routes for individuals who want to realise the full value of their investment.
Taking a risk management approach
Risk management is central to our approach. We ensure that our clients fully understand and appreciate the particular risks that affect each transaction, whether they are buying or selling. To a seller, such risks will often come in the form of warranties and indemnities given for the benefit of the buyer; and certainty of payment where deferred consideration is involved. For the buyer, such risks take the form of both known and unknown liabilities and obligations; fluctuations in the value of assets and liabilities; certainty of cash flow; and employment risks, amongst various others.
A range of risk management mechanisms
We help clients to manage these sorts of risks to achieve a balanced outcome for both parties through various methods including: completion accounts, warranties and indemnities, earn outs, deferred consideration, exclusions, limitations, security such as debentures, and legal charges and quasi-security such as personal guarantees. Our experience allows us to identify the issues that can affect the deal value; to understand them thoroughly; and to implement appropriate solutions, so that your deal continues unaffected and successfully.
Working closely with you for successful acquisitions and disposals
At LCF Law we work hard to make the complex simple for our clients. Even for companies who have undertaken multiple acquisitions and sales, and are familiar with the process, it can be time-consuming and very distracting.
Our job is to make the process as straightforward as possible by agreeing with you a clear plan of the legal work required and then working closely with all the relevant parties to make things happen.
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