FAQs

Selling a business typically means transferring ownership to a buyer. This can be structured in two main ways:

• Share sale – the buyer acquires shares in the company
• Asset sale – the buyer purchases specific assets (e.g. equipment, contracts, goodwill)

In practice:
If you sell all shares in your company, the buyer takes on the whole business, including its liabilities. In an asset sale, you may keep certain liabilities while only transferring selected parts.

• In a share sale, ownership of the company changes hands, and the business continues as before.
• In an asset sale, only agreed assets and rights are transferred, and the seller may retain the company itself.

In practice:
A buyer may prefer an asset sale to avoid unknown liabilities, whereas a seller may prefer a share sale for a cleaner exit and potential tax advantages.

Due diligence is the process where the buyer investigates the business before completing the purchase. This includes reviewing:

• Financial records
• Contracts and key customers
• Employment matters
• Legal risks and liabilities

In practice:
If due diligence reveals an unpaid tax liability or a problematic contract, the buyer may renegotiate the price or require protections before proceeding.

Key documents typically include:

• Heads of terms (outline of the deal)
• Sale and purchase agreement (SPA)
• Disclosure letter (sets out exceptions to warranties)
• Ancillary documents (e.g. employment transfers, assignments of contracts)

In practice:
The SPA will contain warranties (promises about the business). If these turn out to be untrue, the buyer may bring a claim against the seller.

• Warranties are statements about the condition of the business (e.g. accounts are accurate)
• Indemnities are specific promises to cover certain risks (e.g. a known dispute or tax issue)

In practice:
If you state that there are no ongoing legal disputes but one exists, the buyer could claim compensation for breach of warranty.