Due Diligence For A Business Purchase: Part 2

In this Part I will look at the remaining points that should be considered when buying a business.

Ownership of the business

Check that the seller has the right to sell the business – there may be other partners to the business who will need to consent to the sale. If the company is registered at Companies House, then this can be checked quite easily against the company information held there.

Information Technology

You should check any IT equipment which is included in the sale. The following should be considered:

 - How old is the equipment?

 - Who owns the equipment?

 - What’s the value of the IT equipment?

 - Does it need to be updated?

 - Are there any IT service contracts in place?

 - Are there any back-up mechanisms in place in case of equipment failure / data loss?

Employees

Check if any staff are employed by the business, as they will usually transfer with the business, under the Transfer of Undertakings (Protection of Employment) Regulations (‘TUPE’).

Check the employee contracts, and evaluate the wages, national insurance contributions, pension contributions and any other benefits, such as company cars, health insurance, gym membership, travel loans etc.

The Environment

Check if the business needs to pay any fees or taxes and any specific obligations, such as for discharging manufacturing effluent into the environment. It may be worth consulting the Environment Agency if you are not sure.

Protecting Data held by the business

It is important to adhere to the Data Protection Act for any information held by the business, such as employee records and client/customer information. Expert legal advice can be sought for this area, but start with consulting the Information Commissioner’s Office.

Professional Advice

Last, but not least, you should take legal advice on the business purchase. Other professionals can also be consulted, such as accountants, chartered surveyors, business transfer agents, business brokers and corporate financiers.

If you need advice or assistance in purchasing or selling a business, then please contact our Commercial department and speak to one of our team who will be happy to guide you.

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