Buying A Business - The Heads of Terms - Part I
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25 October 2011 By Inam
Ali
This two-part guide attempts to provide a brief outline of the terms
that should be considered, negotiated and included in the Business
Heads of Terms when buying a business.
The 'Business Heads of Terms' is effectively an agreement that sets out
the main terms of the business sale. It is also often referred to as
the 'Heads of Agreement'.
The following terms should be negotiated and listed in the Business
Heads of Terms:
The subject of the Sale
This could be the business, or its assets.
There are advantages and disadvantages for each of these, but generally
speaking, purchasing specific assets of the business will help the
purchaser avoid potential legal liabilities of the business. For
example, this could include a legal action based on a contract a third
party has with the business.
Assets of the business include its equipment, vehicles, stock-in-trade,
debtors and orderbooks, the property it occupies (leasehold or
freehold), and the staff.
The Price and Payment Structure
Generally speaking, payment of the sale price can be as simple or as
complex as the parties want to agree.
Businesses sale valuations are partly based on the profitability of the
business, and therefore, the value could be dependent on the success of
the business up to the date of completion. Ideally, the purchaser
should only rely on the audited accounts of the business, as these are
prepared by a chartered accountant who carries out a detailed
inspection of the accounts.
It really depends on the business in question, and the purchaser's own
intentions, but where the sale price of the business is tied to the
profit figures in the next set of audited accounts, then it may be
necessary to agree a part-deferred payment of the sale price.
Deferred payments can be advantageous to both parties:
- the purchaser could finance the purchase of the business by funds
generated by the business itself
- the price could be set to correlate with the performance of the
business, so if the profits fall, then the sale price falls, and vice
versa
- there could be tax advantages for the seller, in that capital gains
tax on the sale of the business could be spread over more than one tax
year
Inam Ali is a Solicitor at
Lawdit, specialising in Commercial and Intellectual Property Law, and
can be contacted via email: inam.ali@lawdit.co.uk
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.
About the Author
Lawdit
Solicitors offer services and advice for litigation,
commercial contracts, Intellectual Property and IT legal agreements. We
are experts in commercial law with a heavy emphasis on Intellectual
Property, Internet and e-commerce law. Lawdit is a member of the
International Trademark Association, the Solicitors' Association of
Higher Court Advocates and we are the appointed Solicitors to the
largest webdesign association in the world, the United Kingdom Website
Designers Association.
