Understanding UK Business Sale Agreements

Heads of terms (also called a letter of intent) is a short document setting out the key commercial points of the deal: price, payment structure, exclusivity period, conditions to completion. Mostly non-binding, but the exclusivity and confidentiality clauses bite.

Get the heads right. Renegotiating commercial terms during the legal drafting phase is painful, expensive, and the most common reason deals collapse.

Asset sale

Buyer purchases specific assets (equipment, stock, goodwill, lease). Liabilities stay with the seller's company. Preferred by buyers because it limits inherited risk. Simpler tax treatment for the buyer (capital allowances on assets).

Share sale

Buyer purchases the company itself, inheriting everything including past liabilities. Preferred by sellers because of Business Asset Disposal Relief (10% CGT on the first £1m of gains). Contracts, licences and bank arrangements continue uninterrupted.

Warranties are seller statements about the business: accounts are accurate, no undisclosed litigation, all tax filed, no environmental issues, and so on. If a warranty turns out to be untrue, the buyer can claim damages.

Indemnities are pound-for-pound promises to cover specific risks (often tax exposure). Negotiation focuses on the cap (usually the purchase price), the time limits, and the disclosure letter which carves out anything the seller has flagged.

1. Final conditions satisfied (e.g. landlord consent, regulatory approval)
2. Funds transferred to seller's solicitor
3. Sale and purchase agreement signed
4. Share transfer forms or asset bills of sale executed
5. Companies House filings submitted
6. Keys, passwords and customer lists handed over

Most completions happen on a single day with both solicitors managing the choreography. Plan a clear handover period afterwards, typically 1 to 3 months of seller involvement, paid or unpaid as agreed.