What is a Business Sale Agreement?

A Business Sale Agreement (also called an asset purchase agreement) is the legal contract that sets out the terms on which a buyer acquires the business and assets of a company, rather than its shares. Governed by English law, this type of agreement is typically used where the seller is an English private limited company and the buyer wants to purchase specific assets, not take on the company itself.

Whether you’re preparing to buy or sell a business, understanding how a Business Sale Agreement works – and how it differs from a Share Sale Agreement – is crucial for protecting your interests and ensuring a smooth transaction.

A Business Sale Agreement sets out:

• which assets and liabilities are being transferred
  
• the purchase price and payment terms
  
• completion arrangements
  
• warranties and indemnities
  
• how employees will be dealt with (typically under TUPE)
  
• ongoing obligations between the parties

The agreement ensures clarity on what is and isn’t included in the sale, helping to avoid costly misunderstandings or disputes after completion.

Business sale vs share sale: what’s the difference?

A common source of confusion is the distinction between a business sale and a share sale. Although both are mechanisms for buying or selling a company’s operations, they differ in structure, legal effect and risk allocation.

A business sale allows the buyer to “cherry pick” assets and avoid unwanted liabilities. In contrast, a share sale involves acquiring the company as a whole, warts and all.

Who prepares the first draft?

In most cases, the buyer’s solicitor prepares the first draft of a Business Sale Agreement. This allows the buyer to:

• set the tone and structure of the deal
• specify which assets are being acquired
• limit liabilities they’re willing to take on
• include warranties and indemnities tailored to their due diligence findings

That said, the parties may agree otherwise in some cases. Sellers should always review any draft carefully and seek legal advice before proceeding, particularly as key liabilities and obligations may be hidden in the detail.

Identifying the assets being acquired

One of the central features of a business sale is the need to clearly list and describe each asset being transferred. These often include:

• goodwill – the value of the business’s brand and customer relationships
• physical assets – premises, plant, machinery, equipment
• stock and work-in-progress
• contracts – with customers, suppliers or service providers
• intellectual property – trade marks, domain names, software, copyrights
• IT systems and data
• licences and regulatory approvals

Each category needs to be clearly identified in the agreement, often using a schedule or annex. If something is not explicitly included, it is not part of the sale – even if both parties thought it was. That’s why clear drafting is essential.

Employees and TUPE

If the business has employees, the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) will likely apply.

TUPE ensures that employees assigned to the business being sold automatically transfer to the buyer on their existing terms and conditions. Key consequences include:

• the buyer inherits all employee rights and obligations
• both parties must comply with informing and (if applicable) consulting affected staff or their representatives
• certain dismissals may be automatically unfair if linked to the transfer

The Business Sale Agreement should address TUPE obligations, including:

• which employees are transferring
• who is responsible for consultation
• indemnities in respect of pre-transfer employment liabilities

Failure to comply with TUPE can result in claims and financial penalties — so this is not a section to gloss over.

Indemnities for past business liabilities

Because the buyer is not acquiring the company itself, it may assume only selected liabilities. However, where the buyer agrees to take on contracts or employees, there’s a risk of inheriting undisclosed or historic liabilities.

To address this, Business Sale Agreements often include specific indemnities from the seller. These might cover:

• tax liabilities arising before completion
• claims under customer or supplier contracts entered into pre-completion
• litigation or disputes relating to the seller’s operation of the business
• breaches of law prior to the transfer

The indemnities ensure that, if such liabilities emerge, the seller remains financially responsible, and the buyer can claim back losses. This adds a vital layer of protection for the buyer and encourages the seller to disclose issues up front.

Warranties and due diligence

In addition to indemnities, a buyer will expect the seller to provide a series of warranties – contractual promises about the state of the business and its assets.

Typical warranties cover:

• ownership of the assets
• accuracy of financial information
• compliance with laws and contracts
• employee terms and disputes
• Intellectual property ownership

Warranties are backed by disclosure: the seller provides a disclosure letter setting out any known issues or exceptions. If the buyer later discovers a breach that wasn’t properly disclosed, they may have grounds for a claim.

How warranties differ in a business sale vs a share sale

Warranties in a Business Sale Agreement are generally narrower in scope than in a Share Sale Agreement. This is because the buyer is only acquiring specific assets and may not be taking on the entire operational or financial history of the company.

In a Share Sale Agreement, the buyer acquires the whole company, including its corporate structure, liabilities, and legal history. As a result, warranties tend to be much broader, covering areas such as:

• the company’s legal existence and authority to operate
• corporate records and filings
• all tax affairs and liabilities
• all outstanding contracts and obligations
• any potential or ongoing disputes or investigations

In contrast, warranties in a Business Sale are focused on the condition and ownership of the individual assets, the validity of contracts being transferred, and compliance with TUPE and related employment matters.

Buyers in a business sale will typically conduct asset-level due diligence, rather than full company due diligence, and the warranties reflect this narrower scope. That said, they remain critical to mitigating risk, particularly where intangible assets such as goodwill, contracts, and IP form a large part of the value.

Completion and transitional arrangements

The agreement will also set out how and when completion takes place, typically involving:

• signing and exchange of documents
• transfer of physical assets
• payment of the purchase price
• handover of key business information

In some cases, the seller may stay on to assist with transition or continue to supply goods or services under a separate agreement.

The document should clearly deal with transitional responsibilities, access to records, and any continuing cooperation expected from the seller after the sale.

Final Thoughts

A Business Sale Agreement is a vital document when transferring the business and assets of a company under English law. It protects both buyer and seller by clearly defining what is being bought, how liabilities are managed, and how the transaction will proceed.

Whether you’re buying or selling, it’s essential to have a robust, clearly drafted agreement tailored to the transaction. At PaperRock Documents, we offer solicitor-drafted Business Sale Agreements with full guidance notes, so you can move forward with confidence.