Buying or selling a business: Key early agreements to consider16th April 2018 2:53 pm Leave your thoughts
The decision to develop and expand your business by buying a new business (or selling yours) is always a serious prospect and one which you cannot afford to take lightly, writes Victoria Lloyd-White of Colemans Solicitors LLP.
Say you’ve decided to buy or sell the assets of a business. Before you proceed, it’s crucial you consult an experienced lawyer to advise and guide you through the process. Your lawyer will ensure each stage is handled properly so your position is always protected.
Of vital importance are the documents required. Here are some key agreements you can expect to see:
A confidentiality agreement or nondisclosure agreement (NDA). For a seller, signing this agreement can help safeguard disclosed confidential information. You can ensure the information disclosed remains confidential, is only used for specific purposes and clarifies what, when, how and to whom information can be disclosed. It would be unfortunate if before you sign a purchase agreement, your staff, suppliers or customers hear about the deal from someone else. You could end up inadvertently losing key staff, market share or suffer a drop in your business’ value.
An exclusivity agreement or lock-out agreement. For a buyer, it’s important to prevent the seller from negotiating with other parties for a period long enough for you to try and complete the transaction. That way, you can avoid spending a substantial amount of time, money and effort negotiating with the seller only to be ‘gazumped’ if and when a ‘better’ offer comes along. The seller shouldn’t be allowed to use your proposal to test the market.
Now, you have both reached an agreement in principle on the main terms. Before you get involved with the time consuming and expensive due diligence exercise, you ought to capture these terms in writing. Principal terms are typically called Heads of Terms (HoT) or Headings of Agreement and should cover important transaction points. You can include important arrangements about who pays the professional costs, particularly if the matter proves abortive. While HoT are not meant to bind the parties legally in all regards, they can still contain binding terms about legal and accountancy costs. They are however usually considered ethically binding and can help prevent further negotiation down the line. It’s therefore important that you approach this stage of the process carefully and involve your lawyer too.
Get your deal off to the right start by contacting Victoria Lloyd-White.
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This post was written by Colemans Solicitors LLP