Buying a Company

There are two ways of buying a company: a share purchase and an asset purchase. Each has its advantages and disadvantages.

Methods of acquiring a business

There are two methods of acquiring a business:

1. Share purchase

If you buy the shares in a company, you acquire all its assets, liabilities and obligations. A share purchase may be deemed unattractive as it includes any liabilities which are unknown to the seller and/or buyer. That is why disclosure is usually undertaken beforehand, as this should highlight any potential liabilities. However, as the whole company is being bought, there is a benefit of continuity as all contracts with employees and suppliers will be kept.

Within a share purchase it is important to consider the added cost of stamp duty, which is payable by the buyers at 0.5% of the total purchase price. However, if a transfer is part of an intragroup it can be exempt.

2. Asset purchase

If you purchase the assets of the company, you acquire only its assets and liabilities which the buyer agrees to. Therefore, the assets and/or liabilities not purchased remain with the seller. This can often be attractive to a buyer as it then allows for certain unwanted assets and/or liabilities to remain with the seller. Each asset bought will be transferred separately to the buyer. This can be done by assignment, novation or delivery.

With regards to stamp duty, certain assets such as land may attract stamp duty. Most other assets are exempt.

Buyer beware

English law works on the general principle of ‘caveat emptor’ or ‘buyer beware’. This means the buyer carries the risk. If you purchase a company and you failed to uncover potential issues before signing on the dotted line, then the fault lies with you and not the seller.

Therefore, if you are considering buying a company, you need to proceed with caution. You might want to request various warranties from the seller. These are legal statements about things like the company’s assets, liabilities and performance. If a warranty turns out to be false, you can pursue legal action against the seller for breach of warranty.

You should also be sure to carry out the correct due diligence when investigating the purchase. Thorough due diligence can help you get a complete picture of the company’s position. You can also take additional steps, depending on what you discover. For example, if the seller has failed to settle a debt with a supplier, you could request an indemnity on this liability.

Speak to our solicitors

If you are buying a business, whether as a share purchase or an asset purchase, contact us at Aticus Law. Our solicitors can help you. We can represent you throughout the process, guiding you through the purchase to ensure a smooth transition. Our priority is to protect your position. We are rigorous with our due diligence checks and will implement the necessary legal mechanisms to secure the best possible terms.

Contact us now for a free confidential discussion with our Company Law Solicitors.