Buying or selling a company
At BBS Law we have a wealth of experience in advising both sellers and buyers on company sales.
Buying or selling a company is an alternative to buying or selling a company’s business. It involves the buyer acquiring all of the shares in a company. In this way, the buyer acquires ownership and control of the company that carries on the business. The business itself, and all its rights and assets, together with all its liabilities and responsibilities, remains with the company.
A share sale often leads to a smoother transition of control than a business sale as, generally, the only asset that transfers from the seller to the buyer is the shares in the target company. This enables the buyer to take over the running of the business without having to deal with transfers of the individual assets such as property, contracts or licences. The position of employees will remain unchanged.
However, the level of risk for a buyer will generally be greater where a company is being sold as all of the liabilities of the company (including all its historic liabilities) will remain with the company. Accordingly, the buyer is likely to wish to conduct more detailed due diligence on a share sale than on a business sale and to require more extensive protection in the sale and purchase agreement to mitigate its risks.
Each share sale will differ but the principal issues to be considered will typically be:
- the purchase price for the shares – how is this to be satisfied (e.g. cash and/or shares)? Is any part of it to be deferred and, if so, is there a requirement for security? Is it subject to adjustment based, e.g., on the net assets or working capital of the company at the time of sale? Is it to include an earn out element based, e.g., on the post-sale profitability of the target company;
- the level of warranties to be provided by the seller on various aspects of the company’s business and whether any indemnities should be provided to protect against specific risks;
- the disclosures to be provided by the seller as a defence against the warranties which will also serve the purpose of eliciting important information about the company’s business for the seller;
- the scope of any restrictive covenants required from the seller to protect the goodwill of the business following the sale;
- the tax covenant that will invariably be required by the buyer to protect it against pre-sale tax liabilities.