commercial law

Buying or Selling a Business – Glossary of terms

When buying or selling a business there are many things to consider.

As you investigate the process further there are a number of terms which are likely new to you. Unless you have already been through a business sale or purchase you may never have come across them.

We have put together a handy Glossary of Terms to help.

This will give you a good knowledge base from which to build, but there is no substitute for good professional advice.

Confidentiality agreement

The seller may require a potential buyer to enter into a confidentiality agreement prior to any information about the business being disclosed. In some cases it may be the buyer who wishes to enter into a confidential agreement with the seller.

Without a confidentiality agreement in place, private or sensitive data connected to the business may become public. The agreement protects the seller and/or the buyer and the interests of the business.

Exclusivity agreement

A potential buyer may require the seller to enter into an exclusivity agreement prior to negotiations beginning.

This allows the buyer an exclusive opportunity to negotiate with the seller during an agreed time period.

Due Diligence

Due diligence is the investigation of a target business by a potential buyer. It is an essential part of any business acquisition.

It helps them to evaluate the business and see what potential liabilities may be.

During the due diligence process your solicitor will investigate:

• the ownership of the assets
• employment matters
• property matters
• intellectual property matters
• existence of the necessary consents to run the business
• health and safety issues
• key customer contracts
• supplier contracts
• litigation matters, etc.

Seller’s warranties

It is common for the buyer to require the seller to provide contractual warranties.

As there is no statutory protection available to the buyer, they must rely on the seller providing full and correct information.

Warranties give the buyer a right to sue the seller after completion of the sale if any of the warranties are not true. This is unless the seller disclosed against such warranty in a disclosure letter.

Disclosure letter

The seller has an opportunity to disclose against the warranties in the sale and purchase agreement. This is done in the form of a disclosure letter against the matters which contradict the warranties.

The seller might do this to minimise or avoid any potential liability.

We can help

We have extensive experience advising small and medium businesses, partnerships and sole traders in the sale and purchase of their businesses.

Please ask for Paul Hughes on 0121 705 7571
or email paulhughes@wallacerobinson.co.uk

Further reading:

Buying and Selling a Business (Commercial Law)

Buying or Selling a Dental Practice (Commercial Law)

This article is for general information purposes only. It does not constitute technical, financial, legal advice or any other type of professional advice and is no substitute for specific advice based on your individual circumstances. We do not accept responsibility or liability for any actions taken based on the information in this article. For more information, please click here.