Buying a business is an exciting time for any entrepreneur.  However, it can also be a significant risk as more often than not you put either your money, or other personal assets, on the line and whilst with great risk can come great reward, this isn’t always the case. Before proceeding with your investment, you should make sure that you understand the process, what you are buying and crucially have a team around you that can support each element of your transaction.

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Once you have your team together and a target in mind, you will need to consider the structure of the transaction and how you are going to work the deal. There are several different factors that you will need to consider:-

Asset Sale vs Share Sale

If the business you want to acquire is traded through a limited company, you could consider buying the shares in that company. However, this would mean that you take on both the assets and the liabilities of the Company indirectly. Therefore, before agreeing this route you should ensure that there are no liabilities that are particularly onerous or would not want to assume (for example historic tax claims) and that the business of the company comprises of the business you want to buy – i.e. there aren’t any other businesses operated through it which you don’t want to acquire. Due diligence therefore becomes particularly prudent if considering this route.

The alternative is that the company sells its business to you as a going concern. This can benefit you as a buyer as you cherry-pick the assets you want and don’t automatically assume liabilities unless you agree to take them on. However, this can have tax implications for a seller and it can be more complicated if there are particular assets or contracts that need to be transferred to you. For example, those subject to asset finance or material customer and supply contracts requiring consent. If this is the case, a share purchase may be more appropriate to ensure continuity of the business.

There is no ‘one size fits all’ in a transaction and it is important that you get the structure that is right for you.

Payment on Completion vs Deferred Consideration

Another key factor in a sale structure is when you will pay for the shares. Naturally, a Sellers preference would be for you to pay for the shares up front. However, there may be many reasons why this isn’t advisable. For example:-

1. From a legal perspective, there is always the risk that what has been presented to you through the negotiations or warranted to you to induce you to proceed transpires to be untrue and gives rise to a claim. If this is the case, you would be better to be able to set-off the Seller’s liability due to you against the deferred consideration you owe them. Otherwise, you could end up chasing a debt you never realise.
2. From an accounting perspective you may not have the cash to pay the entire purchase price on completion (as the purchase price may take account of more than the net asset value of the company and could factor in, for example, a multiple of EBITDA and potential future earnings). Therefore, it may be necessary to defer payment of some of the purchase price to enable the funds to be raised.
3. From a commercial perspective, you may agree for the purchase price to vary depending upon whether or not certain targets are met and post-completion performance of the company. Therefore, this part of the purchase price would be deferred depending upon the outcome.

Post-Completion Adjustments

There are many different adjustments to the purchase price that can be made post-completion.

• The purchase price may be adjusted to reflect the actual net asset position of the Company on Completion or to take into account the cash in the bank (subject to any indebtedness and there being sufficient working capital) as at completion. These are commonly referred to as a ‘net asset adjustment’ or a ‘cash free/debt free’ deal.
• The purchase price could also be adjusted depending on post-completion performance of the Company, this could take the form of an ‘Earn-Out’ if the seller is staying on post-completion or even be a direct reduction if the Company’s financial position isn’t maintained, or conversely uplift if it performs!
• Ultimately, if there is to be any variation of the purchase price your documents have to be carefully drafted so that they are clear, concise and include accountability provisions and the ability for you to fairly challenge any variation.

The above are just some examples of structure variations that may need to be factored into your deal. At the end of the day, each transaction is unique and it’s important that you consider the structure with your professional advisors to ensure that it works for you.

For advice in relation to buying a business, contact the Corporate Team on 01604 828282 / 01908 660966 or email Coporate@franklins-sols.co.uk. 

Buying a business is an exciting time for any entrepreneur.  However, it can also be a significant risk as more often than not you put either your money, or other personal assets, on the line and whilst with great risk can come great reward, this isn’t always the case. Before proceeding with your investment, you should make sure that you understand the process, what you are buying and crucially have a team around you that can support each element of your transaction.

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Before proceeding, you need to ensure that you have a team of professional advisors in place who can work together to support you in your venture. At the very least, we would recommend:-

An independent financial advisor

Buying a private company or business can be one of the highest risk investments that you could make. If you have a pocket of cash, you should first speak with an independent financial advisor to ensure that it is the right option for you and your money.

A CF (Corporate Finance) Advisor

Once you have resolved to buy a business, you need to find one, value it, put an offer in and potentially fund the purchase! This is where your CF advisor comes in who can help you negotiate these elements of the deal as well as considering the right structure for you.

An accountant

Not only should you have a Trusted accountant in place to support you and the business post-completion, but you need someone to scrutinise the accounts of the business that you are buying so that you have a comprehensive understanding of any historic risks, anomalies and particularly future prospects and your return.

A tax advisor

Transactions can be structured a multitude of different ways. A tax advisor can work with you to explore the options from a tax perspective and advise you on the various consequences of the deal. This will also be a particular concern for the Seller therefore having an advisor enables you to also understand their position and successfully navigate the deal.

A solicitor

Once the deal is agreed in principle your solicitor will work with you not only to undertake due diligence so that you are appraised of any risks from a legal perspective of the business that you are buying, but also to prepare and negotiate the transaction documents and effecting the transaction.

For advice in relation to buying a business, contact the Corporate Team on 01604 828282 / 01908 660966 or email Coporate@franklins-sols.co.uk. 

When buying a business, the purpose of due diligence is to enable a potential buyer to see the assets and liabilities that the business has and therefore what the potential buyer would be liable for if purchasing the business. Although Covid-19 hasn’t changed the purpose of a Due Diligence Questionnaire, it has made asking certain questions more important so that a buyer is fully appraised of risks, and in some cases benefits (noting these could be short lived) relating to the impact that Covid-19 may have had on the business.

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Before proceeding with any acquisition, I would strongly recommend any buyer consider the following:

Staff

1. Were staff levels effected by Covid-19?
2. Did the business make use of the government’s job retention scheme (furlough)?
3. Did staff have a reduction in pay?
4. Were any staff made redundant?

Accounts

5. How are the accounts looking compared to previous years?
6. Was the business affected favourably or adversely by the pandemic?
7. Have sales been effected either way?
8. How did the particular business perform against similar competitors in the market?

Loans

9. Does the business have any additional loans or debts caused by COVID-19? In particular, has the company made use of any government support including CBILS?
10. What would be the impacts of failure to pay these back be and can the business afford it?
11. What where the terms of those loans?
12. What security was given?
13. Have the loans been used for the purpose that they were intended?

Operation of the Business

14. Did COVID-19 impact the way the business interacts with clients? Did meetings turn from face to face to online?
15. Was the business forced to make closures of departments?
16. Has the supply chain been effected?
17. What health and safety procedures have been effected to ensure that the business is ‘Covid-Secure’

Property

18. Has the business changed the way and where it operates from?
19. Are there any liabilities in respect of previous properties?
20. Where are the properties located and are there any ongoing risks of lockdowns?

The above is a brief overview of some of the considerations you should have as a buyer. By raising these additional questions and others, you can ensure you are fully appraised of the possible risks with the business you are buying, allowing you to cover any key concerns off in the contract, consider how you will address identified risks moving forwards and ultimately plan for a successful acquisition.

For further information and to find out how we can help, contact our Business Services Team on 01604 828282 / 01908 660966 or email BusinessServices@franklins-sols.co.uk.

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In a private share acquisition, the parties enter into a Share Purchase Agreement. This agreement is the core document governing the transaction; documenting the terms and conditions of the transaction. Every transaction is different and therefore every Share Purchase Agreement is different and should be tailored to your transaction. However, there are common provisions that a Share Purchase Agreement should have:

1. Operative Provisions

These are provisions that set out what the parties are buying and selling, how much for and when monies are due. It is crucial that these are carefully drafted so that there is clarity for both parties on what they are getting out of the deal and when. Whilst it may seem like these are obvious and straight forward, they are often complex to account for deferred consideration and purchase price adjustments (for example to account for cash and debt as at completion, net assets as at completion or even post-completion performance of the target). Getting this wrong could result in lengthy litigation due to misunderstandings of what is expected, or even a contract failing altogether due to lack of clarity. Therefore, it is best to engage with your solicitors to ensure these are concisely drafted to reflect your intentions.

2. Warranties

A share purchase is a high risk transaction, particularly because a buyer inherits a company’s liabilities as well as its assets. Therefore, a prudent buyer usually seeks assurances from a seller in the form of warranties. These are legally binding promises and statements about the company being acquired and its business, inducing the buyer to enter into the contract itself. If these warranties turn out to be untrue, this could give rise to a claim against the seller. Therefore, these need to be carefully negotiated to ensure that their scope is sufficient protection for the buyer, but not an unrealistic demand on the seller.

3. Restrictive Covenants

When taking on a business, any buyer will want to ensure that the Seller doesn’t set up a new business in direct competition with the one they have just acquired. Therefore, to protect the goodwill of their new company, a buyer will commonly require a series of covenants from the seller preventing competition and poaching. These should be reasonable to be enforceable, that is they cannot be too onerous in terms of how long they apply for. They should also have a geographic element as they limit the restriction to the territories in which the buyer’s business has operated to date.

Of course, these are only some elements that will need careful consideration. Other provisions such as a Tax Covenant, completion accounts and buyer covenants may all form a part of a transaction. To mitigate risks, it is also important that the buyer undertakes detailed due diligence to understand the business they are acquiring pre-completion and that the Sellers make full and frank disclosures in a Disclosure Letter.

Buying and selling shares is a complex process with many factors to account for and our Business Services team is here to help every step of the way. If you would like to know more about the process and documentation involved, contact us on 01604 828282 / 01908 660966 or email BusinessServices@franklins-sols.co.uk.

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The process of buying a business can take many forms, including buying shares in a limited company, buying a trading business as a going concern or buying specific assets to accompany your existing business.

Whichever business structure works for you, our top 3 tips on buying a business is relative to them all:

1. Undertake Due Diligence

I cannot stress this enough. Buyer Beware applies and you need to make sure you know what you are buying and getting yourself in for. You wouldn’t buy a car with a rusty engine under the bonnet – buying a business is no different.

2. Get the contract right

Whatever the size of business or nature of the transaction, you need to ensure that your contract is properly written to reflect the parties’ intentions. The devil is in the detail.

3. Ensure the structure accounts for the commercial aspects of running the business

There is no point owning a business that you cannot operate or whose goodwill can be undermined immediately post-completion. The structure should be tailored to you and the business’ post-completion needs.  

Contact Us

For information on buying a business, the process and costs involved, contact our Corporate Team for an initial, confidential, no-obligation discussion and talk through your proposed purchase on 01604 828282 / 01908 660966 or email Corporate@franklins-sols.co.uk.

As a corporate lawyer a fundamental aspect of the work that I undertake on behalf of our clients is the acquisition of shares in a company. Having carefully structured the requisite documentation providing for a successful purchase, the work does not end there. Post-acquisition, the focus shifts to the governance of the company moving forward and ensuring that the success of the company is always at the forefront of its shareholders minds. Therefore, just like the carefully structured transactional documentation effecting the purchase of the company, consideration should be given to the preparation of a carefully structured Shareholders Agreement.

Do I need a Shareholders Agreement?

A Shareholders Agreement is always recommended where you have multiple shareholders. This is irrespective of any familial relations, friendship or pre-existing ties that the shareholders may have. As you will see, a Shareholders Agreement is key to ensure that each shareholder is accountable for keeping the company’s interests at the heart, and in the case of connected shareholders it can underpin that separation of ‘business’ and ‘pleasure’ that can easily be lost when running a company together.

Do I need a Shareholders Agreement flowchart

Having established whether a Shareholders Agreement is appropriate for you and the share structure of the company, the question turns to what is a Shareholders Agreement?

What is a Shareholders Agreement?

Engage with a corporate lawyer at any stage of your corporate journey and no doubt they will ask you whether you have a Shareholders Agreement in place – but what actually is a Shareholders Agreement and how will this help promote the success of the company? 

A Shareholders Agreement is a private agreement between the shareholders of the company whether that consists of multiple individuals, multiple corporate entities or a parent company with multiple shareholders. The agreement binds them to certain provisions balancing their individual interests and that of the company whilst offering a solution to resolve any issues encountered in a clear and amicable way. 

Whilst there is no legal requirement for you to have a Shareholders Agreement in place, from experience there will be times when the shareholders reach an impasse and are unable to reach a solution and my first question is always “Do you have a Shareholders Agreement?”. Unfortunately without the presence of a Shareholders Agreement there is no easy solution and costly litigation often follows.

“Prevention is always better than cure.”

What is included in a Shareholders Agreement?

Each Shareholders Agreement is different and should be tailored to your own needs. When I am assisting clients with their Shareholders Agreements, it is important to get to know the company, its nature, the structure and how the shareholders intend to deal with the internal affairs of the company.

Whilst the Shareholders Agreement can provide a solution to resolve any internal disputes and how these will be resolved, it also cover the internal affairs and management of the company with a view of promoting the success of the company – these could include:

• provisions for restricted decision making so that it is agreed that certain decisions will require majority or unanimous consent
• the type of business which the company can undertake
• access to financial information for all shareholders
• restrictive covenants and confidentiality provisions to protect the goodwill of the company
• transfer provisions to prevent shares being transferred to third parties without first being offered to other shareholders
• ‘Deemed Transfers’ so that in certain circumstances (such as bankruptcy and death) there is a notice deemed to have been served to the continuing shareholders and the company so that they can purchase shares from the effected shareholder
• rights of minority shareholders to tag-along with a third party offer to purchase share capital held in the company
• rights of majority shareholders to drag-along minority shareholders in a proposed share capital sale to a third party
• rights of employee shareholders – including good/bad leaver provisions in the event the employee leaves the company

The above mentioned points are only a summary of the key provisions that I would expect to see in a well-structured Shareholders Agreement. However, as I mentioned above every company is unique and it is important that you make sure that you have an agreement that is tailored to you.

If you would like to discuss whether or not you need a Shareholders Agreement and what is included, contact Robyn Jefferies and the Corporate Team on 01604 828282 / 01908 660966 or email Corporate@franklins-sols.co.uk.

Whilst many companies, together with their shareholders and directors are navigating the continuing disruption of the COVID-19 pandemic, some have made the decision that now is an opportune time to sell the business. What do buyers need to consider when pursuing a new opportunity at this time? 

The concept of “Caveat emptor” meaning “buyer beware” is integral to the approach to an acquisition and undertaking the due diligence process is one of the most crucial elements of the transaction Buyers must ensure that they are fully aware of all/any potential skeletons that may be lurking in the closet to expose risks and liabilities. Government imposed lock downs as well as global restrictions caused by the pandemic, coupled with social distancing rules have caused unprecedented disruption to businesses. This makes the due diligence process more important now, than ever.

The due diligence process is largely bespoke, by raising enquiries specific to the target company, its business undertaken and the particular industry or sector in which the company operates within. In terms of COVID-19, buyers will want to consider the following enquiries:

Contracts

Every company in some way will have been affected by the COVID-19 pandemic, which would have a knock on effect on the relationships they hold with their customers and suppliers. Buyers will want to analyse whether the target company is able to perform their obligations under existing contracts or if there is a potential that another party is not in a position to carry out their obligations thus affecting the company. In the event that a contract has been terminated and invoked any force majeure rights, the Buyer will want to analyse what impact this will have on the target company to continue operating in the ordinary course.

Compliance

COVID-19 triggered emergency changes in law and regulations and implemented new initiatives with the aim of protecting against the effects of COVID-19. Consideration should be given to whether the company has been compliant with these changes and whether any element of the company’s business or sector is restricted in any way as a result of the changes implemented. 

Data Protection

Whilst working remotely and having employees working from home in response to COVID-19 may have its benefits, there is a heightened risk when it comes to Data Protection.  What has the company put in place to reduce the risk of a breach of Data Protection or potential cyber-attack? Has the company experienced any issues which if not dealt with could result in a breach? In view of new working practices the company should review policies in place for its employees.

Employment

Inevitably the pandemic will have affected those employed by the company, whether this is through absence as a result of isolation from contracting the virus or due to a health condition which puts them into the clinically extremely vulnerable or clinically vulnerable categories.  Has this impacted the business of the company? Have health and safety procedures to ensure a safe working environment been put in place for those who cannot work remotely? Are there policies for employees to work remotely from home? Has the company had to make the tough decision to make any of its employees redundant or furlough its employees? 

Finance

Whilst COVID-19 triggered emergency changes in law and regulations, financial schemes and other measures were put in place to support UK businesses to protect them against financial issues as a result from the pandemic. Consideration should be given to what financial support has been obtained and whether this has been accounted for in the appropriate manner or what support is the company eligible for which can be obtained following the completion of the transaction.

Insurance

To protect the business a company may have sought to claim against their insurance policies, in particular claiming for business interruption losses as a result of COVID-19. Enquiries will need to be raised to ensure that the claims have been properly dealt with and whether as a result of such a claim this has affected the insurability of the company in the future.

IT Systems

With new working practices implemented for the foreseeable or even the new normal for the company, can the company’s IT infrastructure deal with and support secure remote working. Has the company needed to increase the licenses held or review terms of any of its licenced software? Are there any issues with the IT infrastructure which will hinder the ability to have increased demand as a result of the pandemic?

Tax

The buyer should always seek to understand the tax position of the company and the extent of any potential exposure of risk to the company. In view of changes to law, regulations and implementation of financial assistance as a result of COVID-19 it is more prevalent to understand the additional tax risks the company may be exposed to as a result of obtaining assistance during this unprecedented time.  Whilst we cannot advise on tax issues, additional enquiries should be raised and responses on the same can then be discussed with your accountant or financial advisor.

The above mentioned points of consideration are by no means an exhaustive list, the intention of the due diligence process and the questionnaire is to ensure that the buyer knows every detail about the company, big or small, good and bad every cupboard should be checked.

The due diligence process is not just a benefit to the buyer, but in turn protects the sellers position by giving the buyer actual knowledge and negates the sellers liability for any potential breach of warranty, which has been negotiated under the requisite agreement in play to govern the testosterone gel stacking oriental testosterone transaction.  Whilst the due diligence process is generally undertaken at the start of the transaction, more companies are deciding to undertake the process prior to the point of a sale being negotiated. This not only ensures the company, its shareholders and directors are prepared for the process, but helps to identify and take any necessary action to address those identified points that need dealing with, such as ascertaining ownership of intellectual property or reconstituting statutory books.

If you are interested in buying or selling a business and would like more information in relation to the Due Diligence process then please do not hesitate to contract our experienced team on 01604 828282 / 01908 660966 or email BusinessServices@franklins-sols.co.uk.

“I’ve looked at the accounts and everything seems to be okay”. Unfortunately, when discussing the prospect of legal due diligence this is often the response that I receive.  The caveat “buyer beware” applies to your transaction and the onus is on you to undertake detailed enquiries and ensure that you know what you are buying, warts and all.

Due diligence is about identifying risks and mitigating them so that not only do you have a successful transaction, but a successful business to trade moving forwards. Analysing the Company’s accounts is crucial to confirming the value of what you are buying and understanding its income, liabilities and cash flow (amongst many other things) all of which will have an impact on your ability to profit from the deal and ensuring that you can meet the repayment terms of any funding. However, the company’s accounts are only one part of the story.

Contracts

You’ve analysed the accounts and the seller has disclosed that the company is turning a healthy profit and has multiple returning clients. The regular business results in a healthy cash flow that supports your funding requirements for the deal. This is all excellent news.

However underpinning every business relationship is a contract. It does not need to be in writing to be binding, however having written terms certainly gives you comfort as to the terms of service. If there are no written terms, reasonable notice can be given to terminate a contract. So here is the question: what if the customers are unsettled by the change in ownership and give notice to terminate? That income that you were relying upon may dissipate quickly.

It’s not just the customers that you need to think of – what about suppliers? What happens if the change of control triggers a right for them to terminate or change terms of business? You could lose your supply chain that not only could this be disruptive to the business, but could also result in you needing to find alternative suppliers or negotiate new terms, which may be less favourable.

Business, after all, often comes down to relationships. People deal with people and ownership changes can be unsettling. Undertaking legal due diligence can identify the risks specific to the business you are acquiring, the potential impact that a change of team may have and allow you to put a mechanism in place or have comfort in the contractual terms to ensure a successful business post-completion.

Litigation

The accounts may make provision for a potential claim against the company, however founded or unfounded that it may be. That may give you an indication as to what the seller considers the value of the potential liability to the company in monetary terms, but it does not give you an understanding of the likelihood of success of the claim or the broader impact that it may have.

The question is, what is the claim? Is it faulty goods that have been provided – if so has the problem been rectified or could potential claims follow? The risk to the company could be far greater in terms of cost that the initial claim itself and may need rectifying and indeed an indemnity from the seller in respect of any other claims that could arise.

Another key question is reputation – is the claim likely to be public and could it mar the company’s reputation? Take data breaches for example. Personal data is highly sensitive and not only are the sanctions costly, but if made public can damage the company’s reputation and impact its business and therefore income. Identifying the risks of this in due diligence can allow you to put a plan in place to manage the risk and damage to reputation and mean that you are proceeding with your eyes open rather than being blindsided post-completion!

Property

This is one of the highest areas of risk in any transaction as the property may not just be somewhere that the company trades from but also an investment in itself. It’s a great asset to have on the balance sheet and is often leveraged as a part of the transaction in favour of your funders. Although you may not be directly acquiring the property as it is already owned by the target, nevertheless indirectly you are taking on both the asset and associated liabilities and if that asset is compromised; not only can it compromise your security but the investment and business trade itself.

There are a multitude of issues that can arise in relation to property that could be costly:

• Covenants and restrictions on certain types of trade or activities could impact your business growth and development plans or access to the premises could be an issue not originally picked up.
• If leasehold, the term of your lease and whether or not you have security of tenure is vital to your continued occupation and ability to trade from the premises. If the lease is due to expire with no right to hold-over shortly after the acquisition, this will have a significant impact on the business.
• If the property is in a bad state of repair the cost can be significant and the question is, who is going to bear the burden of that cost? If you don’t undertake due diligence and thorough investigations this could be a liability that you suffer even if it happened in the seller’s period of ownership.

The above are just a few examples of property issues that can be detrimental to the business that you are acquiring. You would be amazed at the skeletons that are in the closet that we have encountered, from unpaid Stamp Duty Land Tax to issues with the scope of property ownership and access. Thorough due diligence gives you the opportunity to consider the risks and address them prior to completion or in the sale contract itself by apportioning liability. Without due diligence, you may not become aware of the underlying concerns and put yourself at risk post-completion.

Accounts vs Legal Due Diligence

I don’t deny that accounts due diligence is fundamental to a transaction – indeed in every transaction I work closely with my client’s accountants and tax advisors to ensure that they are also satisfied from a tax and accounting perspective and that the sale contract addresses any underlying concerns. However, it is only by working together that we can protect you.

The above are only examples of a few areas that are covered by legal due diligence and it is only by undertaking thorough investigations from both perspectives that you can ensure that you have fully appraised the opportunity and proceed with the transaction with confidence.

If you would like to know more about legal due diligence please contact our Business Services team on 01908 660966/ 01604 828282 or email ddaudit@franklins-sols.co.uk.