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Understanding the business sale process

View profile for Aaron O'Brien
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Stephensons advises on AOK Events Groups acquisition of Melon

When it comes to selling your business, the process and the terminology can sometimes appear daunting. Most people will only get involved in this process once or a few times.

When you are selling something, the two main methods of sale are: the sale of shares using a share purchase agreement and the sale of the business and assets using an asset purchase agreement sometimes referred to as a sale and purchase agreement.

A share purchase agreement is an agreement between the buyer and seller to purchase the seller’s shares in a company. Under this, the company will remain active, and ownership of the shares in the company will be transferred to the buyer.

An asset purchase agreement is when the buyer buys the assets of a company (fixed assets, goodwill and so on). Under this, the specified assets will be transferred to the buyer.

Whether an asset purchase or share purchase is decided as the best course of action, the following steps will remain largely the same.

Heads of terms

The heads of terms, or letter of intent, sets out the basis for the purchase agreement. Although this may include specific terms that will be stated again in the purchase agreement, unless otherwise stated, the terms in the heads of terms will not be legally binding.

The terms that can be included are terms and conditions of purchase, terms of due diligence, exclusivity period, and restrictive covenants. These are primarily to focus the parties' intentions for the legally binding documents, which will be drafted later in the process; however, it is common for the exclusivity and confidentiality provisions to be binding.

Due diligence

Due diligence is the process conducted by the seller to investigate the business before they agree purchase. This is because the buyer can confirm whether they feel the sale price is correct or if they need to reevaluate their offer price. It can also be a chance to examine any other areas that they feel need further information to ensure that they are aware of all potential liabilities the company faces.

If you are selling your business, the buyer’s solicitors will usually produce a due diligence questionnaire containing areas in which the seller needs to provide more information. This can include information on employees; persons with significant control; financial statements; and information on business premises. If the buyer sees anything that raises issues for them, they can request further information to be provided to answer their queries.

Data rooms will also be created at this stage. This virtual document hosting facility contains all relevant information about the business that is compiled on behalf of the buyer by the seller.  The data room can be made available to the parties and their advisors. 

Purchase agreement

Once the heads of terms have been arranged and all due diligence has been carried out, the purchase agreement negotiation process can begin. The purchase agreement will contain all the articles relevant to the sale of the company. Once signed, this will be legally binding and provide the sale's legal basis. Until signed, this will not be legally binding.

Traditionally, the buyer’s solicitors will prepare the first draft of the purchase agreement. After this, the seller and their solicitors will review the contract, look at the points they do not agree with, and amend the contract highlighting their changes. This will then go back to the buyers until all articles are agreed upon. Usually, both parties will have specific articles they are unwilling to compromise on. Therefore, it is essential to clearly state what the most important parts of the agreement are for you and where you are willing to make concessions. 

Key parts of the purchase agreement include the terms of sale; warranties; limitations on liability; and restrictive covenants. This shows that the agreement can be a complex document creating further legal requirements for both the seller and buyer.

Disclosure letter

The disclosure letter is a further key document in the purchase process. This will often be referred to within the purchase agreement. The disclosure letter is prepared by the seller and will contain any disclosures they wish to make regarding the business and any liabilities it may have. The reason for disclosing the liabilities at this point is that any disclosures made here is that the seller will not be held liable for any losses occurred by the buyer after sale.

If the disclosures are not made here, subsequently, if there are any liabilities the seller knew about, but did not raise, the seller may be made liable under the warranties article of the purchase agreement. The seller can pull out of the agreement with knowledge of liabilities. If the buyer wishes to go ahead with the purchase, the seller will not be liable for the disclosures.

Ancillary documents

Ancillary documents is a term used to describe a whole range of documents used to transfer legal title to shares or assets or further documents that may be relied upon, or form part of the overall purchase agreement. This may include things like stock transfer forms; right to occupy premises; board minutes; licensing agreements; and letter of consent from banks on loans used for the purchase. These will often be referred to in the agreement and provide the necessary rights for the seller to ascertain control and use of the company and/or its assets.


Completion is the final step in the purchase process. During completion, all relevant contracts and the purchase agreement become legally binding. The buyer's solicitors will compile all the relevant signed documents and transfer the buyer's funds to the solicitors of the seller’s bank account. At this point, the purchase will be complete and the buyer will now be the business owner.

If you are thinking of selling your business and would like to know more about the process, costs or support this firm can give you, please call 0161 696 6170.