Buying a company or business
3rd Jul 2008
Buying a company or business
When one company decides to buy another the process can be complex and the need to ensure you know what you are buying is of paramount importance. Solicitors and accountants should be brought in to draft Heads of Terms and Agreements, ask due diligence questions and advise on the replies as well as putting in place the necessary paperwork to ensure things progress smoothly. One of the key decisions for both buyer and seller will be the extent of what is to be transferred.
Typically, where the target is a limited company, the buyer will wish to purchase the entire issued share capital.
This means that the buyer takes ownership of the company and everything about it, including any debts or potentially onerous contracts which may only surface after detailed investigation.
The importance of this investigation should not be underestimated; the results can have a serious impact on the purchase price or even whether the buyer will still want to go ahead if significant problems are discovered.
The advantage to the buyer in acquiring a target company in this way is that it is relatively clean and with proper due diligence it should be clear exactly what is being bought.
An alternative to buying a company’s share capital is to buy the business. This allows a buyer to pick and choose which parts of the company to purchase, meaning less palatable contracts or assets can be left behind along with debts or other unwanted obligations.
The downside is that this can leave a shell where the target company’s business used to be and sellers should take care to ensure they can continue to meet any obligations once the sale has gone through.
As the target company will have sold its business there may then be the additional need to extract the purchase money in a tax efficient way.
The acquisition of a company or business is an important way to expand into new markets or achieve growth and can help to ensure the future success of an organisation.
It is important that it is done properly, with establishing an appropriately detailed understanding of what is being acquired and ensuring adequate protections are in place for both buyer and seller key to the ongoing success of all concerned.
James Wharton is a member of the company law team at BHP Law in Darlington. He can be contacted on (01325) 466794.
Author: James Wharton (JamesW@bhplaw.co.uk)
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