The two are fundamentally different. If shares in a company are purchased, all its assets, liabilities and obligations become those of the buyer (even those that the buyer does not know about). If assets are purchased, only the assets that the buyer specifically agrees to take on, and such liabilities (if any) that it specifically agrees to assume, are acquired.

While no two asset purchases are the same, most transactions include the following phases:

• Dealing with pre-contract documents, such as confidentiality agreements, heads of terms and exclusivity agreements.
•  Conducting financial and legal due diligence on the business and, as necessary, the seller. The buyer will be looking at things like the seller’s past trading accounts, whether there will be any employees transferring with the business, intellectual property (if any), contracts with suppliers and business insurance. A number of lengthy questionnaire forms will form part of process too that request information on a wide range of matters. We can assist you with providing appropriate answers to many of the questions to protect against any inadvertent misrepresentations.

• Obtaining any third-party consents and approvals that may be required before the transaction can proceed or that must be made a condition of the deal. For example, if the transaction involves a corporate buyer and seller, it will usually be necessary for the board of directors of the relevant company to consider and approve:
  

- the transaction as a whole

- the execution of the contract and any other ancillary documents

• Preparing and agreeing the documentation required to implement the transaction.

These include:

• Contract for sale and purchase – usually referred to as the Asset Sale Agreement – that covers the terms of the sale
• Security release documents – if the seller is paying off a mortgage or other commercial loans from the proceeds of sale
• New security documents - if the borrower is borrowing money to facilitate the purchase
• Non-compete agreements – which a buyer may want a seller to sign to confirm the seller will not start a competing business within a prescribed timeframe of selling the target business and within a certain radius of the target business
• Warranties and indemnities – most arm’s length transactions will include full warranties relating to the assets being acquired. But limited or no warranties may be given in some circumstances – e.g., where the seller is a receiver or administrator. The buyer may also require indemnities to cover certain potential known liabilities (such as environmental clean-up costs).
• Disclosure Letter – the purpose of which is to qualify warranties given in the Asset Purchase Agreement.
• Ancillary documents – common examples include:

Documents to perfect the transfer of assets – these will depend on the nature of the assets being transferred. For example, they may include property transfers and/or lease assignments, assignments and/or novation of contracts, assignments of intellectual property and so on

Service agreements – if any key employees involved in the target business are transferring to the buyer, the buyer may require them to enter into new service agreements on completion.

• Signing and exchanging the transaction documents so that they have legal effect.
•  Completing the transfer of business assets. This will include the seller delivering any required forms of transfer or title to the sale assets, and the buyer paying the purchase price to the seller.

In many transactions, completion will take place immediately after the parties exchange the Asset Purchase Agreement, thereby compressing exchange and completion into a single phase (referred to as simultaneous exchange and completion). However, in some situations it may be necessary for there to be a gap between exchange and completion. This typically arises when one or more conditions need to be satisfied after the APA has been signed and before the transaction has completed.

Once completion has happened, a number of post-completion matters will need to be attended to. These include:

• Announcing the transaction
• Paying stamp duty land tax and submitting an on-line tax return to HMRC (if relevant)
• Dealing with the assignments and novations of contracts with customers and suppliers
• Dealing with administrative matters – such as insurance, payroll, PAYE, VAT, and pensions
• Producing a bible of the transaction documents for each of the parties and their solicitors.

Dealing with the sale and purchase of a business often involves several lawyers with different specialisms working on the transaction together. For example, there may be:

•  A commercial property lawyer dealing with the property aspects
• A corporate/commercial lawyer dealing with the business aspects
• A planning lawyer if any planning applications may be needed for change of use

At CCC Law we have all the necessary specialist expertise to efficiently manage a business sale or purchase.

We can help and advise you the best way to structure your specific deal. For an informal chat, please call us on 01263 800089 or 07940 585939 or email: enquiries@ccclaw.co.uk