By Stephen Attree, Managing Director, MLP Law

Buying a business is a lengthy process and involves many different formalities and legal procedures that can be difficult to understand. Each individual stage of the buying process needs to be completed thoroughly and effectively, so that the business is taken over with the fundamental aspects in place to ensure guaranteed growth and long-term success. In this article, I outline the most important stages involved with buying a business and how to be prepared for each process.

So, you’ve decided to buy a business
After showing an interest in acquiring a business that is up for sale the seller will probably want to start things by asking a few questions. These will usually include information about your intentions and future plans for the business. Make sure that you show them your seriousness about buying the business and that you have the finance behind you to complete the transaction. Matters will be helped along swiftly with the aid of professional advisors so make sure you don’t waste any time appointing them.

Getting that expert advice
Professional advisers will play a key part throughout the various stages of taking on a new business so it’s critical that you choose ones that are well equipped to assist your purchase and will keep your best interest in mind at all times.

Legal experts and finance specialists will be required throughout the entire acquisition and will aid with a number of key matters including the due diligence review, contractual protection, negotiating business and employee terms and pension schemes.

The entire acquisition process will be managed by your legal adviser so they must have extensive knowledge of all procedures involved with buying a business so that they are able to anticipate and deal with any issues that arise.

Taking the first steps
The first steps of a business acquisition will involve a number of initial agreements with the seller. For example, at the request of the seller the buyer will normally sign a confidentiality agreement. This agreement states that the buyer will keep all information about the target business private.

Additionally, a Heads of Agreement or Letter of Intent document will usually be created, which is a non-binding document that sets out the key terms of the agreement. It will usually involve detailed financial and legal negotiations, so make your legal advisers are involved to assist with the content.

Due Diligence Review
Once both parties have signed the Heads of Terms your professional advisors will undertake a further stage of due diligence. The Due Diligence Review can provide an excellent foundation for the final negations and therefore needs to be extremely thorough. It can strengthen your position as a buyer and will enable you and your advisors to work together with the seller to close the deal in the best way possible.

The Share Purchase Agreement
A Share Purchase Agreement or Business Purchase Agreement is the main contractual document which sets out the terms of the acquisition. Traditionally, it is drafted by a buyer whereas a seller will draft the Business Purchase Agreement.

The Sale Agreement is another document to consider which includes warranties, indemnities, completion arrangements, covenants that bind the parties as well as details about when the consideration will be paid.

Are there any other documents?
There will be other documents to consider, for example, in most private company share or business acquisitions a disclosure letter will act as a key transaction document. There will be other documents that need to be completed too, such as a tax deed, but your professional advisors will be able to help you organise all relevant papers.

Where do I sign?
The signing and completion of the contract may occur on the same day, however do not be worried if this doesn’t happen. There may be a gap to allow time for other requirements or conditions to be fulfilled, for example, notifying staff members.

Before the Share Purchase Agreement is signed, the board of directors of both parties need to approve the terms of the acquisition. The signing of the documents or the ‘Exchange’ is when the parties sign up to the agreement and give their consent to be bound by its terms.

Completion and beyond
The transaction formally takes place at the time of completion. There are a number of matters that can cause minor problems and hold up the process such as money transfers, release of charges, availability of signatories, funding agreement and consideration shares. It is very advisable to have a well prepared completion agenda in order to keep these matters organised.

All steps that take place, before and after completion, should be covered in the agenda document including items to be produced, delivered and handed over at completion, as well as which documents need to be signed and by whom.

Post completion formalities lie with the buyer so it’s important you understand what needs to be covered. These include payment of stamp duty, making necessary announcements and filing paperwork at Companies House. Complications may arise post-completion, including staffing issues and contractual obligations so make sure you deal with these as promptly and efficiently as possible.

After the deal is completed it’s time to stay just as determined in order to focus your efforts on effectively driving the business forward. With new management and perhaps even a new team it’s important to hit the ground running after all the final steps have been completed, making sure all your energy is put into developing your new business venture.