Selling or buying a business is a major transaction that can be structured in primarily two ways: share sale (buying/selling the shares of the company that owns the business) or asset sale (buying/selling the business assets and possibly liabilities, but not the company itself). In either case, several important contracts and documents will be involved to transfer ownership and protect the parties. Here’s an overview:
- Confidentiality Agreement (NDA): Long before a sale is finalized, the seller will likely disclose financial and operational information to the buyer for due diligence. Both sides should sign a Non-Disclosure Agreement to keep these talks and shared information confidential (see Business FAQ on NDAs). This is especially crucial in business sales, since the buyer might be a competitor or might not buy in the end – you don’t want your sensitive data public or misused. If an NDA wasn’t signed at an earlier stage, it should be before any detailed info or negotiations occur.
- Heads of Terms / Letter of Intent (LOI): Often, buyer and seller agree on key terms in a written LOI or heads of agreement. This outlines the purchase price, whether it’s an asset or share deal, any conditions (for example, “subject to financing” or “subject to satisfactory due diligence”), and timelines. It might also include exclusivity (the seller agrees not to negotiate with others for a period) to give the buyer comfort to spend resources on due diligence. Like term sheets, most of these terms (except exclusivity or confidentiality) are usually not legally binding, but they set the stage for drafting the final contracts.
- Sale and Purchase Agreement (SPA): The main definitive contract will be a business sale agreement. In a share sale, it’s a Share Purchase Agreement between the buyer and the shareholders selling their shares. In an asset sale, it’s typically an Asset Purchase Agreement between the buyer and the company (or individual) selling the business assets. This contract will cover: exactly what is being sold (shares or specific assets like equipment, inventory, intellectual property, goodwill, customer contracts, etc.), the price and how it’s paid (e.g. lump sum, installments, earn-outs contingent on future performance), any adjustments to price (like if accounts are used, there may be an adjustment for working capital at completion), and the transfer date (completion date). Crucially, the SPA contains warranties – promises by the seller about various aspects of the business (e.g., that the accounts are accurate, that the business has good title to assets, that there’s no undisclosed litigation or debt, etc.). If any of those warranties turn out untrue after the sale, the buyer can potentially claim damages. There may also be indemnitiesfor specific known risks (for example, if a legal claim is pending against the business, the seller might indemnify the buyer for any liability from that claim). The agreement will specify conditions that must be met before completion (regulatory approvals, third-party consents like landlord or key client approvals if contracts require consent to transfer, etc.). It also details what happens at completion – e.g., the seller delivering signed transfer forms, the buyer paying the price, etc.
- Disclosure Letter: Alongside the SPA with warranties, the seller will usually provide a disclosure letter (in share sales this is common; in asset sales sometimes too). This letter lists any exceptions to the warranties – essentially the seller saying “we told you about these issues, so you can’t sue us for them later.” For example, a warranty might say “the company is not involved in any disputes,” and the disclosure letter might carve-out “except the ongoing contract dispute with XYZ client as per correspondence already provided.” The disclosure letter, once accepted by the buyer, limits the buyer’s ability to claim breach of warranty on disclosed points.
- Ancillary Documents: Numerous other documents make the transaction actually happen. For share sales: stock transfer forms for the shares, new share certificates, board resolutions to register the transfer, maybe resignation letters for directors if leadership is changing, and possibly new employment contracts if the buyer wants key sellers to stay on as employees post-sale. For asset sales: assignments or novation of contracts (customer or supplier contracts that the buyer will take over need to be assigned or novated, often requiring third-party consent), intellectual property assignment documents to transfer trademarks, patents, etc., property transfer documents(if there’s a lease of premises, either assignment of the lease to the buyer or granting a new lease; if property is owned, a conveyance or land transfer deed must be executed – note that sale of land or property must be done in writing via deed to be valid ), asset transfer deeds/bills of sale for certain assets, and possibly TUPE letters if employees are transferring (in an asset sale, the Transfer of Undertakings (Protection of Employment) regs will automatically move employees to the buyer, but proper notice to employees and possibly consultation is required).
- Transitional Agreements: In some cases, the buyer and seller might sign agreements to smooth the transition post-sale. For example, a Transitional Services Agreement (TSA) if the seller will continue providing certain services for a short time after closing (like IT support or warehousing while the buyer sets up their own). Or a trademark license if the seller is keeping the business name but allowing the buyer to use it for a period. Another example is a non-compete agreement: often, a buyer will require the seller (especially if an individual or key shareholder) to agree not to start a competing business or poach customers/employees for a certain period post-sale. This can be part of the SPA or a separate deed. Such non-compete clauses must be reasonable in duration and scope to be enforceable, but they are common to protect the buyer’s newly purchased goodwill.
- Board and Shareholder Approvals: If the selling company is larger or has multiple owners, internal approvals are needed. Board minutes and shareholder resolutions authorizing the sale (especially in asset sales where it might be essentially selling the whole company’s assets) need to be prepared. Likewise, the buyer company may need board resolutions to approve the purchase and financing.
- Regulatory Filings: Post-completion, there are formalities. In a share sale, the company’s register of members updates, Companies House is notified of new people with significant control, etc. In any sale, if it’s a large transaction, sometimes regulatory approvals are needed (competition authority if big companies merging, or sector regulators if in areas like energy, finance, etc., but that’s case-by-case).
From the above, you can see selling or buying a business isn’t done with a single piece of paper – it’s a process with a suite of legal documents. The guiding star is the Sale and Purchase Agreement, which is often heavily negotiated. Given the complexity and high stakes (a mistake could result in significant costs or leave one party with unwanted liabilities), it’s standard to have solicitors or professional advisors handle the drafting and negotiation of these documents. If you are the seller, a solicitor will help you limit your post-sale liability (for example, by qualifying warranties and setting time limits and caps on any claims the buyer can bring). If you are the buyer, due diligence and warranties are your tools to ensure you get what you think you’re paying for.
To answer succinctly: the main contract is the Sale/Purchase Agreement, accompanied by various transfer documents and often a refreshed shareholders’ agreement or non-compete for continuity. Ensure compliance with any special requirements (for instance, contracts for the sale of land must be in writing and signed by the parties to be enforceable – you cannot rely on a verbal agreement for those). Both parties should also be aware of tax implications and possibly have a tax deed if necessary (especially if the seller gives tax warranties in share sales). Involve accountants for things like apportioning taxes, and consider using British Contracts for competitively priced bespoke documents through our Gold and Platinum packages and contract reviews under our Bronze and Silver packages.
The sale of a business is one of those times you really don’t want to proceed without proper legal documentation. It’s worth doing by the book: once the ink is dry and the ownership changes hands, a solid set of contracts will greatly reduce the chances of disputes and misunderstandings, allowing both buyer and seller to move forward with confidence.