Buying or Selling a Business

There are a host of things to consider during the sale of a business. Whether you are buying or selling, steps need to be taken to protect confidentiality, ensure transparency and safeguard the future of the business and employees, whilst making sure the transaction proceeds smoothly.

Where rhw can help

From Due diligence to disclosure letters, heads of terms and confidentiality agreements, rhw solicitors commercial team are able to advise and assist at every stage of buying or selling a business.

Some of the main areas involved with the sale and purchase of a business. rhw’s commercial team can provide legal advice across all of these areas.

Heads of Agreement

Heads of Agreement are used across the commercial sector. The Agreement summarises the key areas which have been, initially, agreed upon. Though it is not normally intended to be a legally binding, we would advise that legal advice is sought before negotiating this area. Sometimes certain points can be considered as confidential or have a dramatic effect on final terms. Factors that a lay person may not recognise at the time.

Just to address a few of the common areas that get addressed in Heads of Agreement:

  1. Property: Not surprisingly the property assets or commitments associated with a business can be significant.
  2. Confidentiality: Given that sensitive information (financial and otherwise) will be revealed during the process, the parties involved will often want to put a Confidentiality Agreement in place early on in discussions.
  3. Exclusivity: Many people have experienced the incredibly frustrating experience of being ‘gazumped’ when buying a house. To avoid a much more expensive and frustrating but similar event happening when buying a business, parties will add in a ‘lock out’ agreement to ensure the seller cannot talk to other potentially interested parties whilst negotiations are continuing.

Due Diligence

Obviously, the buyer will want to know what it is they are actually purchasing and full details of all potential legal, contractual and financial risks are known.

It is in the interests of all parties that full disclosure of relevant information and documentation is provided at an early stage and that all enquiries are answered properly and promptly. Full and early disclosure of information is vital to allow the transaction to proceed smoothly and it may also help to avoid any late hiccups. A failure to disclose relevant information or respond adequately to an enquiry can put the transaction at risk and result in escalating fees.

Significant issues late on which arise because there has not been disclosure or enquiries have not been dealt with properly can put at risk the entire transaction and/or add significant costs.

Sale and Purchase Agreement

Effectively this is the main meat of the deal. The document records and lays out the rights and obligations of all parties to the deal. An experienced solicitor can make all the difference at this stage.

One of the key elements to the Agreement is the statement, or warranties, made by the seller and relied on by the buyer. This is effectively an insurance policy, as such, and should provide peace of mind for the buyer. It may relate to areas affecting the business such as profitability, the state and condition of the assets, key staff, and information pertaining to accounts and tax.

Disclosure Letter

Few businesses exist without some problems or disputes occurring at one point or another. Any systems involving people or interactions with other entities and businesses will always be at risk of internal or external conflict.

A Disclosure letter is provided where there are other issues extra to the warranties in the Sales and Purchase Agreement that a buyer needs to be aware of. The disclosures are made against the warranties (in effect qualifying them) to protect the seller

The seller will normally want to make disclosures by way of a Disclosure Letter in order to protect itself from being sued by the buyer for breach of warranty further down the line. Disclosure is a vital part of the transactional process and rhw are able to provide the legal advice you need to ensure you have addressed this area properly.

Case Study One: Where it can go wrong!

rhw have recently been involved in an acquisition (buying shares of a company in this case) where investigation shows that the sellers were not entirely forthright about what they were offering (to put it mildly).

Due diligence (DD) was carried out and the usual provisions (warranties and indemnities) were included in the share sale and purchase agreement (SPA).

However whilst the result of the DD investigation and the warranties provided clearly that there was no litigation, ie no court proceedings either threatened or in progress, in reality there was a case that had been running for some three years before our clients completed their acquisition of the Company.

Whilst in theory it may be possible to seek rescission (ie cancellation) of the contract, in reality this is unlikely to be possible even after a few weeks beyond completion.  Further, as is customary, the SPA provided that for any breach of contract rescission was not available and the only remedy would be in damages.

In this case whilst prevention is indeed better than cure, cure is the only way forward and a very expensive case is now required to be brought by our clients against the previous sellers.  Fortunately we acted for them and the SPA provided fully for this situation and so their interests should be safeguarded and protected in the litigation.

This is extremely rare, fortunately, and our clients’ interests are fully protected but the time spent and worry are issues that will never properly be compensated [for].

This is why we always advise our clients when selling (flipping the circumstances around in this case) to be fully honest and transparent and make full disclosure of all the circumstances.

Whilst this situation is serious for our clients as the buyers, it is substantially worse for the sellers who will lose everything that they received for the sale of their company as compensation payment for effectively lying during the sale process.

Nick Richardson – rhw Solicitors llp 

Contact us

Want to know more about buying or selling a business? Please contact rhw for an initial chat.

Contact rhw’s Commercial Legal Team:

rhw solicitors have the experience and expertise you need to ensure a satisfactory conclusion across all of your business activities. Please contact the corporate law team by email on, call Guildford 01483 302000 or go directly to Nick Richardson

Meet the Commercial Law Team

Nick Richardson

Nick Richardson

Member Partner
Alice Ryder

Alice Ryder

Associate Solicitor
Trusha Lukha

Trusha Lukha

Associate Solicitor
Julia Finill

Julia Finill

Legal Secretary