Buying a Business: What the Process Actually Involves

Buying a business is a significant investment, and one that people often approach having already agreed the broad shape of the deal in principle. The commercial conversation tends to happen first. The legal work that follows is where the detail, and the risk, actually sits.

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Shares or assets?

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The first decision is what you are buying. A share purchase means acquiring the company itself, which brings the entire business with it, including any existing debts and liabilities. An asset purchase means acquiring specific parts of the business, such as equipment, contracts and goodwill, which allows you to be selective about what you take on.

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The two routes have different consequences for liability, tax and the transfer of contracts and employees, and the right choice depends on the business and on what you are trying to achieve. It is worth taking advice on this before terms are agreed, because it is much harder to change course later.

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Due diligence

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Due diligence is the process of investigating the business before you complete, and it is where most of the real work happens.

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It typically covers financial records, customer contracts, employment arrangements, and any existing or threatened legal disputes and liabilities. The purpose is twofold: to verify that the business is what you have been told it is, and to identify anything that ought to change the price or the terms before you commit.

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Findings do not always mean walking away. If due diligence reveals that a key client contract is about to expire, that may be a reason to renegotiate rather than abandon the purchase. But you can only make that call if you know about it in advance.

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The documents involved

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Several documents come into play. Heads of terms set out the shape of the deal, usually on a non-binding basis. The Sale and Purchase Agreement is the main contract and contains the protections you rely on as buyer. A disclosure letter sets out the matters the seller is formally bringing to your attention. Alongside these sit the supporting documents that make the transfer work, such as assignments of contracts and the transfer of employees.

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Warranties and indemnities

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These are the provisions that protect you if the business turns out not to be as described.

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Warranties are statements the seller makes about the business, for example that the accounts are accurate or that there are no outstanding legal claims. If a warranty proves untrue, you may be able to bring a claim for breach and recover your losses.

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Indemnities work differently. They provide specific protection against known or suspected risks, such as an ongoing dispute or a tax issue identified during due diligence, and they typically offer a more direct route to recovery.

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After completion

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Completion is not the end of the process. Ownership transfers to you, you take control of operations, and you take on any continuing obligations under the agreement. Practically, that often means integrating staff, notifying customers, and making sure contracts have been properly transferred.

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Getting advice early

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The earlier you take advice, the more options you have. Once terms have been informally agreed, your position is harder to improve.

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If you are considering buying a business or are in early discussions, you can find out more about how our commercial team can help at marsons.co.uk/services/commercial.