Buying or Selling a Business

What are the main legal documents for buying or selling a business?

The principal legal documents for a transaction for the sale and purchase of the business of a company (rather than the shares of the company) can be split into the following categories:

• preliminary:
  • confidentiality agreement/NDA: principally for the benefit of the seller in case the transaction does not go ahead, to protect the confidentiality of the information disclosed about the seller and its business to the buyer for the buyer’s due diligence
  • letter of intent/heads of terms: non-binding transaction terms, setting out the main agreed terms, the assets being acquired, the assets which are not being acquired, timetable and process for the transaction and forming the basis on which the long form legal documents will be prepared
  • exclusivity agreement: principally for the benefit of the buyer, prohibiting the seller from negotiating and entering into a transaction with an alternative buyer
• business purchase agreement (BPA): the main legal document for a business purchase transaction, usually prepared by the buyer side, setting out:
  • included assets: identifying the business assets which are being acquired, which might include goodwill and business names, intellectual property rights (including trade marks), stock, equipment, freehold or leasehold property, customer database, benefit of customer contracts
  • excluded assets: identifying the business assets which are not being acquired, for example cash and book debts
  • sale and purchase: the mechanics for the sale and purchase of the assets of the business being acquired
  • consideration: the consideration to be paid by the buyer, including the form of consideration (cash, shares or a combination), upfront consideration paid on closing, deferred consideration and earnout consideration
  • warranties: warranties from the seller about the business assets being sold
  • employees: provisions dealing with the transfer of employees of the seller to the buyer under TUPE
  • liabilities: provisions dealing with any liabilities of the business which the buyer may agree to assume
  • contracts: how contracts of the business will be assigned to the buyer (including any requirement for consent of the contracting parties to the assignment) and the buyer’s obligations to perform those contracts following completion
  • restrictive covenants: covenants prohibiting the seller from competing with the business being sold and soliciting the customers, suppliers and employees of the business for a period following closing of the transaction
• disclosure letter: letter from the seller, together with an agreed bundle of disclosure documents, disclosing specific matters as exceptions to the warranties under the Business Purchase Agreement
• closing: ancillary closing documents for the transaction, including:
  • assignments of specific assets being sold as part of the transaction, including intellectual property and contracts
  • transitional services to be supplied by a seller
  • buyer and seller board resolutions
  • buyer or seller shareholder consents
  • release of any security over the assets being sold