Business Asset Sale
Selling the bulk or a particular unit or part of your company’s business as a going concern may be a better approach for you than selling the shares in the company for a variety of reasons:
- It will allow you to retain the rest of the company
- There may be tax planning or branding reasons to retain the company
- A selection of business assets, operating as a business may be more appealing to potential buyers, perhaps because they would not have to adopt your company’s past liabilities or because it would be easier to integrate with their own business.
Whether you or your company are selling the whole of your business or particular trading units or assets you will need to provide the buyer with appropriate due diligence and reassurance about your legal title to business assets being sold. If you are selling the business as a going concern then you will need to deal with staff issues that arise, including the rights of staff who are part of the business unit or “going concern” which is being sold, under the Transfer of Undertaking (Protection of Employment) Regulations (usually known as “the TUPE regulations”).
Huntley Legal can advise you on the process, and the legal issues that arise during the transaction, so please call our experienced team now.
Issues To Consider In Structuring An Asset Sale
- Identifying precisely which assets are to be sold
- Confirming whether:
- the assets to be sold amount to a business operating as a going concern, in which case VAT will not be added to the sale price; or
- the assets for sale are simply assets which do not amount to a business, in which case VAT will likely be added to the sale price.
- Identifying the amount of Goodwill which is attached to the business unit / going concern being sold
- Separation of any assets, including intellectual property and branding assets shared by the business unit/ going concern being sold and the remainder of your business
- Deciding whether you will retain any of the intellectual property or branding assets and licence them to the buyer or whether you will include them in the sale and licence them back to the extent you may need to do so for your own remaining business.
- Identifying which of your employees have rights to be transferred with the business under TUPE
- Checking whether there are any restrictions on transferring relevant supplier and client or customer agreements to the buyer: If there are, then completing your sale may require some co-operation from the relevant suppliers or customers.
The Process of an Asset Sale
The key parts and purposes of the legal transaction process are broadly as follows:
Confidentiality Agreement: This is usually put in place as soon as the buyer and seller have agreed that they are interested in the transaction in principle
Due Diligence and disclosure: You will need to supply the buyer with reassuring evidence that:
- you/ your company own each of the assets to be sold;
- that you are free to sell them;
- that each asset is in good condition and free from loans/ mortgages
- if the asset sale is of a business that the business is performing as you have described and is worth the agreed price
Asset Purchase Agreement: this agreement is usually first drafted by the buyer’s solicitor and will include details of the assets, the price and very importantly a set of warranties. The warranties are essentially your promises as the seller as to all the information you have provided to the buyer during due diligence. There will also often be some smaller related documents which are prepared as part of this exercise. The negotiation of the precise wording of this agreement is an important part of the transaction and will dictate the degree to which your sale of assets is a “clean break” for you, and or for how long the buyer may be able to claim back part of the sale price and or damages in relation to the sale, (this would usually be relevant where a statement made by the seller turns out to be inaccurate or the buyer is disappointed by some aspect of the business which they consider should have been made clear by the seller during the negotiations.)
Completion Formalities: in practice this is the formal signing of the Asset Purchase Agreement and any related documents, and the payment of the purchase price by the buyer. In some cases there may be additional tasks to ensure the transfer of supplier or client agreements to the buyer. Where there are employees entitled to be transferred under TUPE then there will be important notification and consultation processes required to move the employees to the buyer.
Depending on the structure of the sale you may have agreed that part of the price will be a share in the post-sale profits of the business, and if so, the precise terms of any such “Earn- Out” will be crucial to making the deal work to your advantage.
Why Choose Huntley Legal For Your Asset Sale?
Our experienced team will provide you with clear and timely advice throughout the process on the legal issues and in particular the assessment of any post sale legal risks and how to minimise them as far as possible.
Our advice is always delivered in a clear, straightforward and timely manner. We use technology wherever possible to improve and speed the process. For instance, we have effectively taken the whole due diligence process online, which reduces costs considerably in every deal of this sort. Even where there are large volumes of documents this allows us to make huge reductions in the amount of document handling that would otherwise be required and so reduce your costs significantly.
If you would like to speak to one of our experienced team of solicitors, please do get in touch with us today. You can do this in a number of ways.
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