Buying A Business – The Heads of Terms – Part II

This is part of a two-part guide that attempts to provide a brief outline of the Business Heads of Terms. In this article, we will take a look at the terms that deal with giving the purchaser an exclusivity period, preconditions that can be agreed, and warranties and indemnities that can be given by the seller to the purchaser.

Exclusivity

Consider agreeing a period of exclusivity which prevents the seller from dealing with other potential purchasers for a certain period.

It may be possible for the purchaser to agree that his or her legal fees will be paid by the seller, if the seller pulls out of the transaction within the exclusivity period.

Preconditions

If there is any specific advantageous event which the business is anticipating, then the purchaser could set it as a precondition. Reaching a minimum level of audited profits, the sale of an asset, or firm orders, are common examples. Where the precondition is not met, then the purchaser does not have to complete on the transaction.

Warranties and Indemnities

The parties should agree any warranties and indemnities the business sale will be subject to.

A warranty is a written statement by the seller which confirms certain key information about the business. For example, the seller could give a warranty that there are no legal claims against the business.

Indemnities are a commitment to reimburse a person (in this case, the purchaser) in full, if a specific event takes place. For example, the purchaser could insist the seller gives an indemnity, to cover any undisclosed tax liabilities of the business that relate to the period prior to the sale completion date.

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.

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