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April Acquisitions - Stage Three, Legal Documents

During this month, Scott Richardson from our Corporate and Commercial Department will be providing a four stage summary of the acquisition process for anyone looking to purchase a business or shares in a company. This article concentrates on the third stage, undertaking thorough legal and financial due diligence on the target business or company.

After hopefully undertaking satisfactory due diligence on the target business or company under stage 2, the next stage of the acquisition process is to prepare and agree the terms of the legal documents required to document and effect the purchase.

As the purchaser, your solicitor will usually prepare the first draft purchase agreement and likely some of the ancillary documents required, for example resolutions approving the transaction and a consultancy agreement if you require the seller to provide formal handover assistance following completion.

Some of the key terms of the main purchase agreement will include the following:

  • Purchase price - setting out how much you will pay for the target, including whether this is adjustable in the form of completion accounts or dependent upon future financial targets being achieved.
  • Payment terms - so how you will pay the purchase price, whether in full at completion or part on a deferred basis.
  • Warranties and Indemnities - so contractual promises provided by the seller which you intend to rely upon, and areas of serious risk identified as part of due diligence which you require to be indemnified against. This will also include the Tax Covenant/Indemnity in share purchase transactions.
  • Non-compete restrictions - provisions aiming to protect the goodwill of the target following completion, although these must be reasonable to be enforceable.
  • Handover obligations - terms setting out the level of assistance (if any) the seller is required to provide following completion.

As the purchase agreement will include tax provisions, input from your accountant or financial advisor is also often required.

Hopefully if clear Heads of Terms have been agreed from the outset under stage 1, this stage of the process should take less time.

If you are considering acquiring a business or shares in a company, or require legal assistance with preparing or reviewing the legal documents required, please contact Scott Richardson in our Corporate and Commercial Team by phone on 01329 227907 or by email on scott.richardson@glanvilles.co.uk.

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute, legal advice, and should not be relied upon as advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. All content was correct at the time of publishing. Legal advice should always be sought in relation to specific circumstances.