This two-part guide attempts to provide a brief outline of the procedure that is involved with buying a business.
A business sale is often termed a ‘TOGC’ – Transfer of a Going Concern.
The TOGC transaction can include the transfer of the premises the business operates at, and these can be either leasehold or freehold.
The initial step when purchasing a TOGC will invariably be to carry out the due diligence procedure, and this will be carried out by the purchaser’s lawyers.
The lawyers will also usually draft the Business Heads of Terms. These list generally the details of the transaction, such as the sale price, the names and addresses of the seller and the purchaser, details of the lawyers acting for each party, the timescales the parties will want to adhere to, and the main provisions the parties will agree to. This document will also confirm the terms that are binding and non-binding on the parties. Those that are non-binding should be clearly stated as strictly ‘subject to contract’, meaning that they will only become binding when the parties have agreed to them in a formal written contract. In a TOGC transaction, the contract takes the form of a Business Sale Agreement.
The lawyers acting for the seller and the purchaser will need to draft the Business Sale Agreement, which is the legal document used for the sale of the TOGC. It will address all or any the following elements:
Â -Â Apportionment of purchase price
Â -Â Title of business property
Â -Â Value of the debtors and creditors
Â -Â Restrictive covenants affecting the property (if any)
Â -Â Stock-in-trade
Â -Â Employees
Â -Â Accounts and accounting procedures
Â -Â Goodwill (eg, reputation, trademarks, etc)
Â -Â Vehicles and equipment
Â -Â Supply contracts
Â -Â Business finance and loans (if any)
Â -Â Tax
Due to the type of information that will be provided by the seller, it may be necessary for the purchaser to take additional advice from an accountant, for accounts and tax related information, and a surveyor for seeking a survey report on the building.
The second article, will take a closer look at the elements of the Business Sale Agreement.
If you would like assistance with buying or selling a business, then please contact our Commercial Department and speak to one of our solicitors who will be happy to discuss this with you.