Corporate Sales Stage 3, Legal Documents

Following our ‘April Acquisitions’ four stage summary published earlier this year for the benefit of prospective purchasers of businesses or shares in a company, during September Scott Richardson from our Corporate and Commercial Department will be concentrating on the Seller’s perspective and providing a four stage summary of the share or business sale process for anyone looking to sell a business or shares in a company.

After providing a Purchaser with replies to its due diligence enquiries on the target business or company under stage 2, along with documents in support, the next stage of the sale process is to review and agree the terms of the legal documents required to document and effect the sale.

The Purchaser’s solicitor will usually prepare the first draft sale agreement and likely some of the ancillary documents required, for example resolutions approving the transaction and a consultancy agreement if you and the Purchaser would like to formalise any handover assistance following completion. This may be particularly important to you as the Seller if you expect to receive remuneration for assisting the Purchaser post-completion over a fixed period of time.

This will also include the preparation of the Disclosure Letter, which is arguably the most important ancillary document for the Seller as it is in effect the Seller’s ‘shield’ against any future breach of warranty claims (ie. breach of contract claims) the Purchaser may bring against the Seller following completion.

Some of the key terms of the main sale agreement from the Seller’s perspective will include the following:

• Purchase price - setting out how much you will receive for the target.
• Payment terms - so how and when you will receive the purchase price, whether in full at completion or part on a deferred basis. If on a deferred basis, ensuring an ‘events of default’ clause is included to require the Purchaser to make payment in full in certain circumstances (for example breaching the payment terms or on any future sale of the target by the Purchaser before making payment in full to you).
• Security – if all or part of the deferred consideration is payable on a deferred basis by a corporate Purchaser party, ensuring any form(s) of security agreed (hopefully as part of stage 1) are required to be entered into on completion and specifically referring to these, for example debentures or a charge over shares.
• Limitation on claims - provisions seeking to limit your liability to the Purchaser in the event of a breach of warranty or indemnity claim under the agreement following completion. For example, this would include financial caps (which should be no more than the consideration you receive under the agreement); time periods within which the Purchaser may bring such claims against you following completion; and matters already within the knowledge of the Purchaser as part of its due diligence on the target company or business.

As the sale agreement will include tax provisions, including the Tax Covenant (ie. the tax indemnity) and Tax Warranties that a Purchaser will likely require, 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 selling 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.