Avondale Guide - Legal Aspects of a Business Sale - Free Business Guides
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Avondale Guide - Legal Aspects of a Business Sale - Free Business Guides

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The legal aspects of a business sale transaction can be complex. It's crucial that you employ a professional but also that you have an insight into the process. This guide will provide you with......

The legal aspects of a business sale transaction can be complex. It's crucial that you employ a professional but also that you have an insight into the process. This guide will provide you with that insight by covering:
Main Differences Sale of Business/Sale of Company
Legal Process
Heads of Agreement
Finance for the Purchase
Request for Information (Due Diligence)
Response to Request for Information
Draft Share Purchase Agreement/Business Purchase Agreement
Negotiate Warranties
Disclosure Letter
Exchange of Contracts
Completion
Completion Meeting
Guide to TUPE (transfer of Protection of Employment)
Sample - Legal aspects of the deal timetable
Sample - Heads of Terms

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  • 1.       Guide:  Legal  Aspects  of  a  Business  Sale         www.avondale.co.uk   Page  1  of  10   01737  240888     This  guide  is  not  definitive.  Accuracy  is  not  guaranteed  and  it  does  not  replace  professional  advice.     Contents       The  legal  aspects  of  a  business  sale  can  be  complex.    This  guide  is  designed  to  give  you  a  good  insight  into  the   process  and  tasks  that  will  need  to  be  undertaken:     • Main  Differences  Sale  of  Business/Sale  of  Company   • Legal  Process   o Heads  of  Agreement   o Finance  for  the  Purchase   o Request  for  Information  (Due  Diligence)   o Response  to  Request  for  Information   o Draft  Share  Purchase  Agreement/Business  Purchase  Agreement   o Negotiate  Warranties   o Disclosure  Letter   o Exchange  of  Contracts   o Completion   o Completion  Meeting   o Guide  to  TUPE  (transfer  of  Protection  of  Employment)   o Sample  -­‐  Legal  aspects  of  the  deal  timetable   o Sample  -­‐    Heads  of  Terms     Main  differences  –  Sale  of  Business/Sale  of  Company   People  often  get  confused  between  the  sale  of  a  business  and  the  sale  of  a  company.    When  selling  a  company   it  is  the  shares  that  are  sold.  As  far  as  the  outside  world  is  concerned  there  is  no  change  as  they  still  deal  with   the  same  company.  Behind  the  scenes,  however,  the  owners  of  the  company  have  changed.    In  contrast  a   business  can  be  owned  either  by  a  sole  trader,  a  partnership  or  a  company.  Any  aspect  of  the  business  its   assets  or  division  can  be  purchased  or  sold  often  this  is  without  liabilities.    There  are  tax  implications  and   differences   between   the   sale   of   a   business   and   the   sale   of   a   company   and   tax   advice   is   essential   before   proceeding.     Heads  of  Agreement/Terms   Once  you  have  agreed  in  principle  to  buy  or  sell  a  business  or  company,  a  document  which  sets  out  the  basic   terms  agreed,  called  The  Heads  of  Agreement/Terms  is  signed.  This  will  include  the  amount  to  be  paid,  how  it   is  likely  to  be  financed,  and  any  other  specific  terms.    Usually  the  Heads  of  Agreement/Terms  comprise  the   main  points  only,  and  only  in  outline     The   Heads   of   Agreement/Terms   are   normally   not   binding   except   in   respect   of   confidentiality   clauses   and   exclusivity  if  included.       Finance  for  the  Purchase   It  is  normally  at  this  point,  if  not  before,  that  the  purchaser  needs  to  decide  how  the  business  purchase  is   going  to  be  funded.    This  may  be  done  by  a  variety  of  methods  including  bank  loans,  cash,  paying  over  a  period   of  time  (earn  out  or  deferred  consideration),  or  a  combination  of  these  factors  depending  on  the  amount  the   bank  is  prepared  to  lend.    Once  it  is  clear  that  the  finance  has  been  approved  in  principle,  we  can  proceed  onto   the  next  stage.    
  • 2.   Guide:  Legal  Aspects  of  a  Business  Sale       www.avondale.co.uk   Page  2  of  10   01737  240888     This  guide  is  not  definitive.  Accuracy  is  not  guaranteed  and  it  does  not  replace  professional  advice.     Request  for  Information  (Due  Diligence)   The  due  diligence  process  serves  to  confirm  all  material  facts  in  regard  to  the  business  or  company.    It  refers  to   the  care  and  research  a  reasonable  person  should  take  before  entering  into  an  agreement  or  transaction.     Most  purchase  offers  will  be  contingent  upon  the  results  of  a  due  diligence  report.    During  these  process   financial  records,  commercial  contracts,  legal  agreements  and  anything  else  deemed  material  to  the  sale  will   be  reviewed.    Vendors  may  also  carry  out  due  diligence  on  the  purchaser,  to  investigate  their  ability  to   purchase  and  or  anything  that  may  affect  the  purchased  entity  or  the  vendor  after  the  sale.         The  process  is  often  begun  by  the  purchaser  issuing  a  questionnaire,  asking  for  particular  documents  and   points  they  may  want  clarified.    The  answers  to  these  questions  will  then  likely  form  the  basis  of  the   warranties  in  the  sale  and  purchase  agreement.     The  seller  must  respond  honestly  and  openly  and  in  detail  to  this  request  so  that  the  purchaser  can  be  satisfied   that  the  company  is  free  of  any  liabilities  other  than  those  identified.     A  data  room  is  often  used  during  the  due  diligence  process,  which  will  contain  all  financial,  commercial,  and   legal  information  on  the  business,  including  detailed  accounts,  particulars  of  all  properties,  and  employees  and   copies  of  all  contracts.    They  are  often  provided  to  the  purchaser  in  an  on-­‐line  format,  hosted  by  a  third  party   with  a  password  and  protected  internet  access.    Alternatively  it  may  take  the  form  of  an  actual  room  at  the   legal  advisors  offices,  or  simply  in  electronic  or  hard  copy  format.     The  following  are  some  issues,  which  should  be  considered  during  the  due  diligence  process.        There  might  be  forgotten  guarantees,  which  could  be  subsequently  activated.      Can  it  be  certain  that  all  taxes  have  been  declared  and  paid  up  to  the  point  of  sale?      Might  the  tax  authorities  subsequently  question  the  basis  upon  which  returns  have  been  made?      Have  all  claims  against  the  company  been  fully  disclosed?      Could  any  mistakes  have  been  made  in  stocktaking?      Intellectual  property  matters.      Product  liability  matters.      Pension  liability.      Environmental  issues.      
  • 3.   Guide:  Legal  Aspects  of  a  Business  Sale       www.avondale.co.uk   Page  3  of  10   01737  240888     This  guide  is  not  definitive.  Accuracy  is  not  guaranteed  and  it  does  not  replace  professional  advice.       Response  to  Request  for  Information   Once  the  seller’s  solicitor  has  received  the  Request  for  Information,  they  will  together  with  their  client  compile   a  package  of  information  (with  documentation  attached  if  necessary)  setting  out  answers  to  all  the  queries   raised.       The  Buyer’s  solicitor  will  discuss  the  information  disclosed  with  their  client  and  in  particular  review  any  areas   of  concern  e.g.  liabilities  of  the  company  which  they  might  be  accepting.  They  will  then  decide  whether  they   want  any  warranties  (“guarantees”  or  statements  of  fact)  or  indemnities  from  the  seller.  For  example,  a  seller   might  be  asked  to  warrant/guarantee  that  a  particular  state  of  affairs  exists  (that  the  books  and  records  are   true  and  correct),  or  to  indemnify  the  purchaser  if  a  particular  event  happens.       Draft  Share  Purchase  Agreement/Business  Purchase  Agreement   This   is   traditionally   drafted   by   the   purchaser’s   solicitor.   It   generally   includes   a   long   section   of   warranties   (guarantees)  and  indemnities  protecting  the  purchaser  in  the  event  that  the  business  is  found  not  to  be  as  has   been  represented.      The  agreement  also  covers  all  terms  that  have  been  agreed.       Negotiate  Warranties   Once  the  first  draft  of  the  agreement  has  been  sent  to  the  seller’s  solicitor,  they  will  review  the  terms  and  in   particular  the  warranties  and  indemnities  with  their  client.    The  seller  must  check  carefully  that  they  are  able   to  give  the  warranties  either  as  requested  or  by  qualifying  them  (diluting  them).    If  the  purchaser  needs  to  be   made  aware  of  any  other  issues  in  the  business  this  is  the  time  to  disclose  it.       If  information  which  is  relevant  is  withheld  by  the  seller,  a  purchaser  could  later  sue  the  seller  particularly  if   the  seller  has  guaranteed  a  certain  state  of  affairs  and  they  transpire  not  to  exist  or  be  wrong.      Depending  on   the  warranties  and  indemnities  being  requested,  both  sets  of  solicitors  will  try  and  negotiate  a  compromise   which  adequately  protects  both  parties.  These  negotiations  can  take  a  long  time  with  a  lot  of  “horse  trading”   before  final  agreement  is  reached.      Sometimes  a  sale  can  collapse  because  the  parties  cannot  agree.       Warranted  statements  provided  by  the  vending  shareholders  of  a  company  to  the  purchaser  or  the  financial   advisor  sponsoring  the  sale  of  shares  to  the  public  are  used  by  the  purchaser  to  paint  a  picture  of  the  company   which   is   being   bought.   Indemnities   are   to   secure   potential   future   losses.   Warranties   guarantee   that   a   particular  set  of  facts  are  as  they  are  stated  to  be.    They  are  a  result  of  the  due  diligence  exercise  to  serve  to   contractually  bind  the  vending  shareholders  to  their  statements  in  order  to  avoid  the  common  law  defence  of   “caveat  emptor”  –  Let  the  buyer  beware.    The  basic  premise  is  that  the  purchaser  buys  at  their  own  risk,  and   should  therefore  examine  and  test  themselves  the  facts  given  to  them  about  the  business  for  obvious  defeats   and  imperfection  upon  reasonable  inspection  so  by  making  these  warranties  and  indemnities  it  is  making  the   purchaser  aware  of  any  defect,  thus  they  cannot  claim  they  were  unaware  and  thus  have  any  cause  to  claim   against  them.     The  warranties  will  provide  comfort  over  those  matters  which  are  most  important  to  the  purchaser.    If  the   purchasers  subsequently  discover  after  the  sale  that  any  of  these  warranties  were  incorrect  or  misleading,  and   that  the  company  is  worth  less  than  they  expected  it  to  be,  they  can  then  make  a  claim  against  the  vendors  for   breach  of  warranty.  It  is  usually  possible  to  claim  under  the  warranties  for  up  to  seven  years  in  relation  to  tax   and  up  to  two  years  for  non-­‐tax  claims.    Generally,  the  amount,  which  the  purchaser  can  claim  back  under  the   share  sale  agreement,  is  the  amount  paid  for  the  company.    This  leaves  the  vendors  at  risk  for  possibly  the   entire  sale  price  for  up  to  seven  years.  This  is  a  risk  many  would  prefer  to  transfer,  in  the  form  of  an  insurance   policy.         Disclosure  Letter   Generally,  there  will  be  an  agreement  between  the  two  parties  as  to  the  standard  of  disclosure  before  the   acquisition  is  completed.    The  warranty  as  to  this  standard  of  disclosure  will  be  contained  in  the  Sale  and  
  • 4.   Guide:  Legal  Aspects  of  a  Business  Sale       www.avondale.co.uk   Page  4  of  10   01737  240888     This  guide  is  not  definitive.  Accuracy  is  not  guaranteed  and  it  does  not  replace  professional  advice.     Purchase  Agreement.    A  disclosure  letter  is  then  commonly  used  to  evidence  the  disclosure  by  the  seller  to  the   purchaser  of  key  information  about  the  target  business  with  the  bundle  of  documents  disclosed  attached  to   the  letter  in  paper  or  electronic  form.  The  purchaser  will  then  be  able  to  make  an  informed  decision  as  to   whether  it  wished  to  complete  the  purchase,  or  whether  to  ask  for  an  indemnity  from  the  purchaser  in  relation   to  any  of  the  risks  set  out  in  the  disclosure  letter,  or  withdraw  from  the  sale  all  together.     Guide  to  TUPE     The   Transfer   of   Undertakings   (Protection   of   Employment)   Regulations   2006,   commonly   known   as   TUPE.     Protects   employees’   terms   and   conditions   of   employment.   TUPE   applies   to   ‘relevant   transfers’  -­‐   almost   all   transfers  of  businesses  from  one  employer  to  another  e.g.:  where  a  business  (or  part  of  it)  is  sold  and  where   services  are  changed  /  outsourced.  TUPE  is  not  applicable  for  Share  Transfer  sales  as  there  is  no  change  of   employer.         Does  TUPE  apply;  is  it  a  ‘relevant  transfer’?   1)  Business  transfers  -­‐  The  key  question  is  whether  or  not  there  is  a  transfer  of  an  economic  entity  that  retains   its  identity.      Factors  to  consider  include:   • Is  the  type  of  business  being  conducted  by  the  transferee  (incoming  business)  the  same  as  the   transferor's  (outgoing  business)?   • Has  there  been  a  transfer  of  tangible  assets  such  as  building  and  moveable  property  (although  this  is   not  essential)?   • What  is  the  value  of  the  intangible  assets  at  the  time  of  the  transfer?   • Have  the  majority  of  employees  been  taken  over  by  the  new  employer?   • Have  the  customers  been  transferred?   • Is  there  a  high  degree  of  similarity  between  the  activities  carried  on  before  and  after  the  transfer?     If  the  answer  to  all  (or  several  of)  the  above  questions  is  'YES',  there  has  been  a  transfer  of  a  stable  economic   entity.     2)  Service  provision  changes  -­‐  A  ‘service  provision  change’  occurs  when  a  client  who  engages  a  contractor  to   do  work  on  its  behalf  is  either:     • reassigning  the  contract  (whether  by  contracting  out,  outsourcing  or  re-­‐tendering),  or   • Bringing  the  work  ‘in-­‐house’  (where  a  contract  ends  with  the  service  being  performed  in-­‐house  by  the   client  themselves).   It  will  NOT  be  a  service  provision  changes  if:     • the  contract  is  wholly  or  mainly  for  the  supply  of  goods,  or   • The  activities  are  carried  out  in  connection  with  a  single  specific  event  or  a  task  of  short-­‐term   duration.     The  effects  of  TUPE   Upon  the  transfer  of  the  business  employees  employed  just  before  the  sale,  automatically  become  employees   of  the  purchaser,  on  the  same  terms  and  conditions  of  employment.  It  is  as  if  their  contracts  of  employment   had  originally  been  made  with  the  purchaser.    The  purchaser  inherits  liability  for  any  employees  dismissed  by   the  vendor  for  reasons  connected  with  the  transfer.  Any  dismissal  connected  to  the  transfer  is  automatically   unfair.  The  purchaser  cannot  select  which  staff  to  take  on.         The  consultation  rules   Where  employees  are  represented  by  a  trade  union  the  employer  must  inform  and  consult  with  the  union   about   the   proposed   business   transfer.     Otherwise   the   employer   must   inform   and   consult   employee   representatives  about  the  proposals.      There  are  legal  requirements  that  apply  to  the  election  process  and   rights  of  employee  representatives.         What  must  the  vendor  tell  the  employees  who  are  due  to  transfer?  
  • 5.   Guide:  Legal  Aspects  of  a  Business  Sale       www.avondale.co.uk   Page  5  of  10   01737  240888     This  guide  is  not  definitive.  Accuracy  is  not  guaranteed  and  it  does  not  replace  professional  advice.     • that  the  transfer  is  going  to  take  place,  when  approximately  it  will  take  place,  and  the  reasons  for  it;   • the  implications  of  the  transfer  for  the  affected  employees;   Whether  the  new  employer  is  planning  to  make  any  changes,  such  as  reorganisation  as  a  result  of  the  transfer,   and  if  so,  what  arrangements  are  being  planned  and  how  those  will  affect  the  staff.    Consultation  should  be   undertaken  with  a  view  to  seeking  agreement  on  the  proposed  changes.  Both  vendors  and  purchasers  are   obliged  to  inform  staff  about  the  proposed  changes.       ETO  reasons   Neither  the  purchaser  or  vendor  can  fairly  dismiss  an  employee  because  of  the  transfer  or  a  reason  connected   with  it,  unless  the  reason  for  the  dismissal  is  an  economic,  technical  or  organisational  reason  entailing  changes   in   the   workforce   (known   as   an   “ETO”),   such   as   a   redundancy   situation.     Dismissal   because   of   a   relevant   transfer  will  be  unfair  unless  an  employment  tribunal  decides  that  an  ETO  was  the  main  cause  of  the  dismissal,   and  that  the  employer  acted  reasonably  in  the  circumstances  in  treating  that  reason  as  sufficient  to  justify   dismissal.       To  avoid  claims  of  automatically  unfair  dismissal  being  pursued  by  affected  employees,  purchasers  /  vendors   contemplating  the  need  for  redundancies  should  seek  specialist  advice  as  this  is  a  very  technical  area  of  law.       Transfer  related  dismissals  and  Tribunal  claims   Dismissed   employees   can   complain   to   the   Employment   Tribunals.   An   employee   claiming   to   have   been   dismissed  because  of  a  transfer  may  claim  their  dismissal  is  automatically  unfair.    Employment  tribunals  may   order  reinstatement  or  re-­‐engagement  and/or  make  an  award  of  compensation.       Transferred  employees  whose  terms  and  conditions  of  employment  have  changed  for  the  worse  as  a  result  of   the  transfer  have  the  right  to  terminate  their  contract  and  claim  constructive  unfair  dismissal,  on  the  grounds   that  actions  of  the  employer  have  forced  them  to  resign.       Employee   representatives   have   the   right   to   protection   from   detrimental   treatment   and   paid   time   off   to   discharge   their   duties   as   employee   representative.     Where   the   employer   fails   to   properly   consult   with   the   employees  under  TUPE,  complaints  can  be  issued  in  the  Tribunal  and  the  employer  who  is  at  fault  may  be   ordered  to  pay  compensation  to  each  affected  employee.    Compensation  can  be  up  to  13  weeks  pay.       Pensions   The  Transfer  of  Employment  (Pension  Protection)  Regulations  2005  came  into  force  on  6  April  2005.    Where   the  vendor  provides  a  money  purchase  scheme  or  stakeholder  pension,  the  purchaser  is  under  an  obligation  to   match  the  vendor’s  employer  contributions  to  the  scheme  up  to  a  maximum  of  6%  of  basic  pay.     Practical  TUPE  tips  for  the  vendor:   • Seek  Advice  regarding  TUPE  at  an  early  stage,  in  order  to  determine  the  tactics  /  assess  the  risks  involved   with  the  proposals.   • Ensure   all   staff   have   up   to   date   employment   contracts,   accurately   reflecting   their   current   terms   and   conditions.   • Do  not  change  the  work  force  terms  in  the  lead  up  to  a  sale.   • Do  not  make  people  redundant  if  the  purchaser  asks  you  to.   • Make  sure  you  comply  with  the  consultation  rules.   • Timetable  enough  time  to  consult  with  the  staff.     Practical  TUPE  tips  for  the  purchaser:   • Seek  Advice  regarding  TUPE  at  an  early  stage.   • Raise  enquiries  regarding  the  staff’s  existing  terms  and  conditions,  length  of  service,  roles  and  functions  etc   in  order  to  find  out  what  employment  liabilities  you  are  taking  on;   • Carry  out  a  risk  assessment  regarding  the  employees;   • Make  sure  you  comply  with  the  consultation  rules;   • Timetable  enough  time  to  consult  with  the  staff;  
  • 6.   Guide:  Legal  Aspects  of  a  Business  Sale       www.avondale.co.uk   Page  6  of  10   01737  240888     This  guide  is  not  definitive.  Accuracy  is  not  guaranteed  and  it  does  not  replace  professional  advice.     • Ensure  that  the  vendor  has  complied  with  its  legal  requirements  under  TUPE  regarding  consultation  etc;     Sample  legal  aspects  of  the  deal  timetable     Avondale  will  manage  the  timetable,  and  fully  liaise  with  all  parties  throughout.    Monitoring  the  progress  and   ensuring  momentum  is  not  lost.     18 th  July   Purchaser  and  vendor  to  have  formally  requested  solicitors  to  proceed.   23 rd   July     Purchaser  solicitor  to  send  vendors  solicitor  initial  due  diligence  enquires.   25 th  July    Purchaser  to  provide  Avondale  financial  letter  of  comfort  from  bank  or   accountant.   1 st  August     Vendor  and  vendor  solicitor  to  reply  to  all  initial  due  diligence  enquiries.     5 th /6 th  August   Purchaser/purchaser  accountant  to  visit  vendors  premises  to  carry  out  any   further  due  diligence  required.   13 th  August   Purchaser  solicitor  to  send  draft  sale  purchase  agreement  to  Vendor  solicitor.   22 nd  August     Vendor  solicitor  to  review  &  respond  to  draft  sale  contract.   29 th  August   Purchaser  bank  or  purchaser  accountant  to  confirm  finance  in  place.   1 st  September   Purchaser  solicitor  to  send  back  revised  draft  sale  contract   8 th  September   Sale  purchase  contract  to  be  agreed  (or  round  table  meeting  for  all  parties  to   overcome  issues  and  get  it  agreed).   10 th  September   Vendor’s  solicitor  to  provide  disclosure  letter  and  bundle.   12 th  September    Transaction  completes     Note:  The  above  is  a  guide  only  with  example  dates,  and  will  vary  considerable  for  each  sale.     Sample  Heads  of  Terms     The  heads  of  terms  is  a  summary,  non-­‐legally  binding  in  most  respects  of  what  the  parties  have  agreed.    Most   parties   will   offer   using   a   form   of   draft   heads   of   terms.   This   saves   time   and   creates   clarity   early   on,   by   highlighting  the  requirements  of  both  the  vendor  and  purchaser.     Sample      Date:                        Ref:   This  document  outlines  the  ‘head’  terms  agreed  between  the  parties,  prior  to  negotiation  of  a  final  sale  and   purchase  agreement.    Save  in  the  respect  of  confidentiality  and  exclusivity;  the  terms  are  not  legally  binding,   and  are  subject  to  due  diligence  and  contract.     The  parties  are  (“the  Parties”)     The  Vendor   XYZ  Vendor/s,  or  key  shareholder/s,  name/s     C/o  Co.  name  or  home  address  if  share  sale   Or  Company  name  &  no.  of  private     Address  In  private  town     Postcode   The  Purchaser   Full  name/s  of  individuals   Or  Company  name  c/o  of  individual/s   Address  of  purchaser  town   County     Postcode      
  • 7.   Guide:  Legal  Aspects  of  a  Business  Sale       www.avondale.co.uk   Page  7  of  10   01737  240888     This  guide  is  not  definitive.  Accuracy  is  not  guaranteed  and  it  does  not  replace  professional  advice.     1.  The  sale  basis   Mr.  /  Mrs.  Shareholders/XYZ  Company  (“the  Vendor”)  will  sell  to  Mr.  /  Mrs.  Purchaser/ABC  Company  (“the   Purchaser”),   the   business   known   as   (XYZ   name,   of   00,   XY   Street,   any   town)   (or   company   XYZ   reg.no.123456678)  and  any  associated  names  (“the  Business”).    The  sale  will  be  on  a  fixed  asset  and  goodwill   basis/share  transfer  basis.       2.  Timescale   The  parties  will  conduct  their  best  endeavours  to  secure  completion  by  (date  XYZ).         3.  Purchase  Price/Terms  To  delete  or  insert  rows  click  on  table  command.     The  purchaser  will  pay  the  vendor  as  follows:   Item   Amount   Payable   Note   Initial  payment   Share  deal     £   On   completion   1.Share  deal   For  the  purchase  of  the  entire  share  capital  of  the  Business  to  include   the  net  assets  at  completion  to  be  at  least  £45,000.  The  Vendor  may   take   a   pre-­‐sale   dividend   to   reduce   the   net   assets   to   this   level   if   appropriate.  OR  to  exclude  the  net  assets  see  below.   Other   £     Add  details  here   Net   assets   (estimated)   Share  deal     £   On   completion   Share  deal  (if  not  included  above)   A   payment   will   be   made   for   the   net   assets   of   the   company   on   completion.  The  net  asset  value  per  accounts  to  31-­‐4-­‐2001  is  £45,000.   It  is  estimated  this  will  be  materially  similar  at  completion.       Target     £TOTAL         4.    Protections  for  deferred  or  performance  related/earn  out   To  protect  the  payments,  the  purchaser  will  provide  the  following  protections  to  the  vendor  for  the  duration   of  the  payments:    A  personal  guarantee      A  charge  over  the  freehold  property    A  debenture  on  the  assets  of  the  Company  Not  if  preference  shares  are  being  used    Key-­‐man  insurance  or  life  assurance  to  protect  outstanding  payments  in  the  eventuality  of  illness,   incapacity,  critical  illness  or  death.    Access   to   all   the   records,   including   legal,   accountancy,   ledger,   and   banking   paperwork   and   documentation.    The  issuing  of  statements  regarding  the  payments,  and  produce  accounts.    Undertakings  that  the  business  will  be  run  materially  the  same  as  at  the  present  time  and  for  the   duration   of   the   earn-­‐out   period   and   that   the   accounts   will   be   run   according   to   UK   accounting   standards...    Undertakings  that  the  purchaser  shall  not  in  any  way  compete  with  the  business  during  the  earn-­‐out   period.     5.    Protections  for  part  sale/mergers,  vendors  retaining  minority  shareholders    The  shares  in  the  Newco/oldco  will  be  enhanced  by  a  quality  shareholders  agreement  with  caveats   that:    The  shares  will  be  valued  pro-­‐rata    Offer  first  refusal  to  ‘buy  each  other  out’  either  on  a  voluntary  transfer  or  a  deemed  transfer  (for   example  on  death  and  bankruptcy  or  ceasing  to  be  an  employee)    Cross  options  if  the  vendor  dies  ensuring  the  estate  benefits  from  cash  not  a  minority  shareholding.   To   ensure   that   the   company   or   the   other   shareholder   has   the   cash   to   acquire   a   deceased’s   shareholding  it  may  be  appropriate  for  a  life  policy  to  be  put  in  place.    A  seat  on  the  Board  to  reflect  the  shareholding  
  • 8.   Guide:  Legal  Aspects  of  a  Business  Sale       www.avondale.co.uk   Page  8  of  10   01737  240888     This  guide  is  not  definitive.  Accuracy  is  not  guaranteed  and  it  does  not  replace  professional  advice.      Agreed  minority  shareholding  protection  to  ensure  that  the  minority  shareholder  has  rights  of  veto   over  certain  fundamental  matters.    In  the  event  of  the  Vendor’s  death  or  mental  incapacity  during  the  period  of  the  earn-­‐out,  then  the   shares  should  pass  to  the  ownership  of  the  Vendor’s  estate.         6.  Premises  and/or  as  follows,  or  similar!   The  current  premises  are  XYZ  address,  anywhere   The  Vendor  will  sell  to  the  Purchaser  the  freehold  premises  at  (“premises  address”).     The  Business  owns  the  freehold  and  it  will  be  transferred  by  way  of  the  share  transfer     New  or  existing  lease  terms  or  licence  terms   Period:     Terms:     Rent:     Deposit:     Payment     Costs:     Reviews     Break   clause:       7.  Landlord’s  consent   Granting  or  assigning  a  lease  or  Director’s  guarantee  is  subject  to  the  Purchaser’s  status  and  the  landlord’s   consent  (not  to  be  unreasonably  withheld).     8.  Consultancy  or  handover   The   Vendor   agrees   to   provide   the   Purchaser   a   2-­‐week   initial   handover   free   of   charge   during   office   hours.   Thereafter,  they  agree  to  be  available  by  telephone  or  fax  within  reason  for  a  further  period  of  (six  months.   As   an   Employee   or   Consultant,   consider   the   following   as   applicable   dependent   on   circumstances,   age   and   expertise  of  Vendor.  XYZE  names  and  WXY  names,  shall  on  completion  be  employed  by  or  provide  consultancy   services  to  the  Purchaser.  Final  terms  to  be  agreed  between  the  Parties  but  to  include:     Title:     Expenses:     Salary:     Car:     Hours:     Holidays:     Benefits:   Private  Medical  Insurance  to  include  in-­‐patient  medical  care  with  a  maximum  contribution   by  the  employee  of  15%.    The  Policy  should  be  uunderwritten  by  a  branded  provider  and   be  operative  from  day  1  of  his/her  duties  as  General  Manager.   Benefits:   A  Company  Pension  Scheme  will  be  made  available  to  the  General  Manager  and  will  be   operative   from   day   1   of   his/her   start   date.     The   Scheme   should   allow   for   Additional   Voluntary  Contributions  and  should  provide  for  a  final  pension  of  not  less  than  XYZ.   Commission:   5%  of  all  turnover  introduced  up  to  a  maximum  of  £20,000  commission  p.a.   Duties:   Recruitment  of  new  Consultants,  Business  Development  to  existing  and  new  client.       9.  Resignations  share  deals   The  following  shall  resign  as  Directors  on  completion  -­‐  XYZ  and  ABC  exiting  (Director’s  name/s).     10.  Employees   The  Vendor  agrees  to  provide  the  Purchaser  with  a  list  of  all  staff  to  include:  their  names,  ages,  length  of   service,  salaries,  benefits  and  duties.  The  Parties  also  agree  that:    Any  redundancies  will  be  the  Purchaser’s  legal  and  financial  obligation.    
  • 9.   Guide:  Legal  Aspects  of  a  Business  Sale       www.avondale.co.uk   Page  9  of  10   01737  240888     This  guide  is  not  definitive.  Accuracy  is  not  guaranteed  and  it  does  not  replace  professional  advice.      During  negotiations  of  the  final  sale  &  purchase  agreement  that  no  employees  will  be  taken  on  or   dismissed   without   the   Purchaser's   reasonable   consent   (except   where   the   employee   may   be   summarily  dismissed).     For  fixed  asset  and  goodwill  sales  only    Any  obligations  under  the  TUPE  regulations  to  consult  with  the  staff  about  the  transaction  will  be   met.    Staff  salaries  and  holiday  pay  will  be  apportioned  between  the  Parties.    Key  staff  retention  idea      To  assist  the  Purchaser  in  continuation  of  goodwill  the  Vendor  agrees  to  pay  the  staff  listed  below  a   loyalty   bonus   after   (“six”)   months   of   successful   service   with   the   Purchaser   of   (“£2,000   each”)   in   recognition  of  their  endeavours  and  contributions  to  the  business.       11.  Tax   The  Parties  agree  to  give  fair  consideration  to  each  other’s  tax  position  in  the  negotiation  of  a  final  sale  and   purchase  agreement.    The  following  is  for  asset  deals  only  The  Parties  will  agree  an  apportionment  of  the  sale   price  between  (“goodwill,  fixed  assets  and  leasehold  interest/freehold”)  for  tax  purposes.       12.  Non  compete  and  protection  of  goodwill   To  protect  the  goodwill  the  Vendor  will  provide  covenants  that  they  will  not  for  a  reasonable  period  and  within   reasonable  proximity  enter  into  a  competitive  business  or  carry  out  an  action  that  might  materially  affect  the   goodwill  of  the  Business.    The  Vendor  will  also  conduct  the  Business  in  its  normal  and  ordinary  course  until   completion.       13.  Confidentiality,  due  diligence  and  disclosure   The   Parties   agree   that   the   terms,   negotiations   and   sale   are   confidential   save   in   taking   counsel   from   their   professional  advisors,  or  as  required  by  the  rules  and  regulations  of  the  London  Stock  Exchange,  or  any  TUPE   obligation  to  consult  with  employees.    The  Parties  agree  to  disclose  any  facts  material  to  the  transaction.  The   Vendor  will  grant  the  Purchaser  or  their  advisors  and  employees  access  to  the  Business,  its  operations  and   books  in  order  to  perform  due  diligence.  Access  will  be  provided  consistent  with  the  Vendor’s  requirement  to   protect  confidentiality.       14.  Representations  and  warranties   The   Vendor   agrees   to   provide   and   the   Purchaser   agrees   to   request   warranties,   indemnities   and   representations  appropriate  for  a  transaction  of  this  size.       15.  Advisors,  fees  and  costs   The   Parties   agree   to   instruct   early   on   appropriate   advisors   to   complete   a   transaction   of   this   size   in   the   timescale   proposed.   Each   party   shall   be   responsible   for   their   own   advisor’s   fees   and   costs   incurred   in   the   transaction.           16.  Exclusivity  and  deposit     The  Vendor  agrees  to  provide  exclusivity  to  the  Purchaser  up  to  the  target  date  for  completion,  subject  to   reasonable  progress  being  made  by  the  Purchaser.    During  such  exclusivity  the  Vendor  or  their  advisors  will  not   before  completion  discuss,  negotiate  or  provide  assistance  to  any  third  party  who  may  be  interested  in  the   Business.       17.  Terms   English  law  will  govern  these  Heads  of  Terms  and  the  sale  and  purchase  agreement.       Vendor’s  signature     Purchaser’s  signature        
  • 10.   Guide:  Legal  Aspects  of  a  Business  Sale       www.avondale.co.uk   Page  10  of  10   01737  240888     This  guide  is  not  definitive.  Accuracy  is  not  guaranteed  and  it  does  not  replace  professional  advice.                                                                                                              Date:          /              /0                                                                                                              Date:          /              /0