Understanding contracts when buying or selling a business

You should ensure all the agreements made during the negotiations are included in the sale purchase contract and that all the necessary details are set out in the accompanying documentation. Most of these documents are drawn up by the buyer's solicitor and negotiated, finalised and signed remotely.

What should the sale purchase contract include?

The final documentation typically includes:

• the sale agreement
• the tax deed (in share purchases, this is the seller's indemnity against unforeseen tax liability)
• any other indemnity agreements, where the seller agrees to reimburse the buyer in full for undisclosed liabilities incurred by the company before the sale
• minutes of the board meeting agreeing the transfer of ownership and resignation of directors
• transfer documents for licences, leases, client contracts, shares, etc
• service agreements (for the seller and other directors remaining in an advisory role and for employees remaining with the business)
• finance details for the sale (including guarantees, loan or share agreements)
• agreements for any deferred payments by the buyer
• warranties, for example guaranteeing the accuracy of the seller's statements on all key information
• the seller protection schedule for the buyer's claims against warranties
• the seller's disclosure letter and documentary evidence regarding warranties
• non-compete agreements or covenants (for the seller not to set up a competing business in the same area within a given time period)

After signing, the buyer's and seller's solicitors ensure that each side keeps the original documents they need. The buyer's solicitors prepare a file of all the documentation for both the seller and the buyer.

Completing the sale of the business

To complete the sale:

• the buyer's solicitors register the change of ownership and directors at Companies House
• in asset and goodwill deals, the seller deregisters and the buyer registers for VAT
• the financial agreements are put into effect
• the seller - and the buyer if necessary - must have informed and consulted affected employees and be compliant under the Transfer of Undertakings (Protection of Employment) (TUPE) regulations
• buyer and seller work through the task list for the handover