Buying a business is an exciting time for any entrepreneur.  However, it can also be a significant risk as more often than not you put either your money, or other personal assets, on the line and whilst with great risk can come great reward, this isn’t always the case. Before proceeding with your investment, you should make sure that you understand the process, what you are buying and crucially have a team around you that can support each element of your transaction.

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Before proceeding, you need to ensure that you have a team of professional advisors in place who can work together to support you in your venture. At the very least, we would recommend:-

An independent financial advisor

Buying a private company or business can be one of the highest risk investments that you could make. If you have a pocket of cash, you should first speak with an independent financial advisor to ensure that it is the right option for you and your money.

A CF (Corporate Finance) Advisor

Once you have resolved to buy a business, you need to find one, value it, put an offer in and potentially fund the purchase! This is where your CF advisor comes in who can help you negotiate these elements of the deal as well as considering the right structure for you.

An accountant

Not only should you have a Trusted accountant in place to support you and the business post-completion, but you need someone to scrutinise the accounts of the business that you are buying so that you have a comprehensive understanding of any historic risks, anomalies and particularly future prospects and your return.

A tax advisor

Transactions can be structured a multitude of different ways. A tax advisor can work with you to explore the options from a tax perspective and advise you on the various consequences of the deal. This will also be a particular concern for the Seller therefore having an advisor enables you to also understand their position and successfully navigate the deal.

A solicitor

Once the deal is agreed in principle your solicitor will work with you not only to undertake due diligence so that you are appraised of any risks from a legal perspective of the business that you are buying, but also to prepare and negotiate the transaction documents and effecting the transaction.

For advice in relation to buying a business, contact the Corporate Team on 01604 828282 / 01908 660966 or email Coporate@franklins-sols.co.uk. 

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There are two principle ways in which you can sell the business of a company limited by shares:

1. by selling all of the shares in the company (a share sale);
2. by selling the business of the company as a going concern (business sale).

Either way, a buyer is subject to the maxim of caveat emptor – buyer beware. It is the buyer’s responsibility to ensure that it obtains information relating to the company or business that it is going to purchase. The buyer obtains this information through the process of due diligence. This involves the buyer’s solicitor sending a Due Diligence Questionnaire (“DDQ”) covering issues such as details of the target’s property, main contracts and tax to the seller for its responses.

As a seller, it is on you to respond to this questionnaire comprehensively and in a timely manner to keep your transaction moving forwards. Failure to do so properly could result in a protracted transaction, losing a buyer or a claim post-completion against you. Of course, you have to answer these questions whilst still running your business which can be a challenge in itself! So, here are my top tips for first-time sellers on managing the due diligence process:-

Prepare and Plan

Due diligence can be a lengthy and time consuming process, involving a large volume of paperwork. I suggest that you start collating documentation early and create a checklist of documents you have and documents you may need to request from a third party, for example copies of contracts with suppliers. Being prepared with information, even before Heads of Terms are agreed, will help to avoid delays and can even expedite the transaction. Ideally, you want to start this process 2-3 years ahead of a sale when you are in the initial planning stages for your sale. This will give you and your professional advisors time not only to gather and organise the information, but to process it and address any concerns that a buyer may have in advance of a transaction.

Anticipate Documents Required

As mentioned above, there will be documents that you don’t have to hand, were entered into some time ago or even relationships that aren’t documented at all. You should anticipate this and gather the necessary information sooner rather than later to avoid delays in the deal, or even tipping off a third party that there is a pending sale. The following is a non-exhaustive list of some of the areas covered by a DDQ and the documents required:

• Constitutional Documents: If you are undertaking a share sale, you will be asked to provide your statutory books. These are not the records at Companies House but private company registers which you should have maintained since incorporation. If you don’t know where these are, speak with your accountant or solicitor who may have these lodged with them.
• Assets: You will be asked to verify which equipment, plant, machinery, stock, fixtures and fittings are owned by the company and which are leased. You will be asked to provide copies of the lease agreements, any hire-purchase agreements and the associated terms and conditions as well as valuations for the assets.
• Employment: you will be asked to provide anonymised copies of employment contracts.
• Property: you will be asked to provide copies of leases, insurance documents, planning permissions and EPCs.

Organise your Data Room

A data room is a secure, online platform which allows the seller to upload information which provides evidence to support the responses to the DDQ. The buyer will be able to review the data room. We suggest creating folders and numbering documents in the data room to correlate with the DDQ so that information is presented in an organised way and so that you can cross-reference your responses by referring to documents. Having this carefully organised will be particularly useful when it comes to your disclosure letter.

Answering the DDQ thoroughly and providing supporting documentation will help to ensure that your sales process runs smoothly and protect you from any post-completion claims. It is therefore fundamental to make sure that you get this process right.

If you are thinking of selling your business or require legal assistance in relation to due diligence, contact the Business Services Team on 01604 828282 / 01908 660966 or email BusinessServices@franklins-sols.co.uk.  

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When creating a limited liability company, you create a separate legal entity which can enter into contracts, purchase goods and render services. The company has its own legal personality and therefore responsibilities. When registering the company, a protection is provided to directors to preserve their personal assets. In other words, the directors of a company cannot be bound by, and are not personally responsible for, the company’s liabilities and obligations. If the company is sued, defaults a loan or is declare bankrupt, the officers’ personal assets are protected from the creditors. This is called the “corporate veil”.

However, this protection offered to the company’s officers is not guaranteed and the corporate veil can be lifted in certain circumstances. This can be done voluntarily, by the directors giving a Personal Guarantee to secure the company’s liabilities. This is commonly required as a part of a security package when the company is seeking a loan facility. If this is being asked of you, you should seek independent legal advice on the guarantee before proceeding so that you are fully appraised of the risks to you personally and surrendering the protection the corporate veil otherwise affords.

Piecing the corporate veil can also be a legal decision made by the courts in order to hold the officers for of the company responsible for its actions and debts. This is particularly where there has been some wrongdoing on the part of the directors; in particular in circumstances where the company is in financial difficulty. Wrongful trading, fraud, misfeasance and breach of fiduciary duties could all result in an order against you personally and an obligation for you to make payment out of your own pocket.

To keep the corporate veil intact, and protect or your own assets, it is crucial for you to keep your personal and business activities completely separate. Intermingling both is the most common way to pierce the corporate veil. You should also ensure that you always act with integrity when making decisions for the company, keep the best interests of the Company (including all of its members and creditors) at heart and if your company is in financial difficulty, seek independent advice from a qualified insolvency practitioner who can guide you on the steps you should be taking as a responsible director.

The above is not exhaustive and there are other circumstances where you may be personally liable as a director.

For more information on your duties and liabilities as a director, or independent legal advice if you are asked to guarantee your company’s liabilities, contact our Business Services Team on 01604 828282 / 01908 660966 or email BusinessServices@franklins-sols.co.uk.

When buying a business, the purpose of due diligence is to enable a potential buyer to see the assets and liabilities that the business has and therefore what the potential buyer would be liable for if purchasing the business. Although Covid-19 hasn’t changed the purpose of a Due Diligence Questionnaire, it has made asking certain questions more important so that a buyer is fully appraised of risks, and in some cases benefits (noting these could be short lived) relating to the impact that Covid-19 may have had on the business.

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Before proceeding with any acquisition, I would strongly recommend any buyer consider the following:

Staff

1. Were staff levels effected by Covid-19?
2. Did the business make use of the government’s job retention scheme (furlough)?
3. Did staff have a reduction in pay?
4. Were any staff made redundant?

Accounts

5. How are the accounts looking compared to previous years?
6. Was the business affected favourably or adversely by the pandemic?
7. Have sales been effected either way?
8. How did the particular business perform against similar competitors in the market?

Loans

9. Does the business have any additional loans or debts caused by COVID-19? In particular, has the company made use of any government support including CBILS?
10. What would be the impacts of failure to pay these back be and can the business afford it?
11. What where the terms of those loans?
12. What security was given?
13. Have the loans been used for the purpose that they were intended?

Operation of the Business

14. Did COVID-19 impact the way the business interacts with clients? Did meetings turn from face to face to online?
15. Was the business forced to make closures of departments?
16. Has the supply chain been effected?
17. What health and safety procedures have been effected to ensure that the business is ‘Covid-Secure’

Property

18. Has the business changed the way and where it operates from?
19. Are there any liabilities in respect of previous properties?
20. Where are the properties located and are there any ongoing risks of lockdowns?

The above is a brief overview of some of the considerations you should have as a buyer. By raising these additional questions and others, you can ensure you are fully appraised of the possible risks with the business you are buying, allowing you to cover any key concerns off in the contract, consider how you will address identified risks moving forwards and ultimately plan for a successful acquisition.

For further information and to find out how we can help, contact our Business Services Team on 01604 828282 / 01908 660966 or email BusinessServices@franklins-sols.co.uk.

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Buying a company is considered to be one of the highest risk-investments that you can make. However, there are certain steps that you can take to mitigate the risks of proceeding with your purchase:-

1. Undertake detailed due diligence

I cannot stress the importance of due diligence enough. Buyer beware is a cliché for a reason and it is fundamental that you ensure that you are fully appraised of what you are buying. Due diligence takes many forms and includes:

a. Commercial due diligence, so that you are aware of the practicalities of running the company from completion.

b. Tax and Accounts due diligence, so that you are fully aware of the tax history of the company and how its accounts have been prepared so that any concerns can be addressed.

c. Legal due diligence which is where we delve into the legalities of share ownership and how the business has operated to date.

Ultimately, if you do not undertake due diligence you run the risk of acquiring a company that you cannot run and which may be riddled with legal or tax issues which you need to remedy which can be costly. Whilst provisions can be included in the SPA to protect you from these, it is still better to ensure there are no skeletons in the closet in the first place and ensure that, if there are any, it is agreed as to how this will be addressed which mitigates your risks as a buyer. 

2. Use a comprehensive purchase contract

Buying a company is more than just signing a Stock Transfer Form. Whilst a Stock Transfer Form is the legal instrument that will transfer your shares, it doesn’t offer any protections for the buyer or the seller. A Share Purchase Agreement governs the sale itself and should include a series of provisions including:

a. Payment provisions – to ensure that it is clear how much you are paying and when it is due. It is not uncommon for part of the consideration to be deferred or even contingent but you need to ensure that it is clear as to what is due to be paid and crucially when it is due to be paid to avoid a dispute.

b. Restrictive covenants – these are fundamental to protect the goodwill of the Company post-completion. Your seller will have a significant amount of knowledge, know-how and contacts from their time as owners and you need to ensure that this isn’t utilised post-completion to set up a new business in competition with the one you have just purchased.

c. Warranties – these are contractual promises which if found to be untrue could give rise to a claim against the sellers. These give you some assurance as to the information that you have been provided and risks associated with the company that you are buying. Therefore, they induce you to enter into the contract and proceeding without these can put you at great risk as a buyer.

3. Tax Covenant

Historic tax liabilities are one of biggest risks you run when buying a company. HMRC can go back 6 years and investigate historic returns and claims including, for example, R&D tax credits. If the Company is challenged or penalised post-completion in relation to a return made by the Sellers you should be able to claim this back from them. Therefore, you should ensure that you have in place a tax-covenant to protect you from any undisclosed tax liabilities relating to the Sellers’ period of ownership.

Ultimately, buying a company is always going to be a risk but by following due process and putting in place the right documentation you can mitigate that risk and maximise the return on your investment.  

If you are considering a company purchase and would like more information on how we can assist, please don’t hesitate to get in touch with our Corporate Team on 01604 828282 / 01908 660966 or email Corporate@franklins-sols.co.uk.

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In a private share acquisition, the parties enter into a Share Purchase Agreement. This agreement is the core document governing the transaction; documenting the terms and conditions of the transaction. Every transaction is different and therefore every Share Purchase Agreement is different and should be tailored to your transaction. However, there are common provisions that a Share Purchase Agreement should have:

1. Operative Provisions

These are provisions that set out what the parties are buying and selling, how much for and when monies are due. It is crucial that these are carefully drafted so that there is clarity for both parties on what they are getting out of the deal and when. Whilst it may seem like these are obvious and straight forward, they are often complex to account for deferred consideration and purchase price adjustments (for example to account for cash and debt as at completion, net assets as at completion or even post-completion performance of the target). Getting this wrong could result in lengthy litigation due to misunderstandings of what is expected, or even a contract failing altogether due to lack of clarity. Therefore, it is best to engage with your solicitors to ensure these are concisely drafted to reflect your intentions.

2. Warranties

A share purchase is a high risk transaction, particularly because a buyer inherits a company’s liabilities as well as its assets. Therefore, a prudent buyer usually seeks assurances from a seller in the form of warranties. These are legally binding promises and statements about the company being acquired and its business, inducing the buyer to enter into the contract itself. If these warranties turn out to be untrue, this could give rise to a claim against the seller. Therefore, these need to be carefully negotiated to ensure that their scope is sufficient protection for the buyer, but not an unrealistic demand on the seller.

3. Restrictive Covenants

When taking on a business, any buyer will want to ensure that the Seller doesn’t set up a new business in direct competition with the one they have just acquired. Therefore, to protect the goodwill of their new company, a buyer will commonly require a series of covenants from the seller preventing competition and poaching. These should be reasonable to be enforceable, that is they cannot be too onerous in terms of how long they apply for. They should also have a geographic element as they limit the restriction to the territories in which the buyer’s business has operated to date.

Of course, these are only some elements that will need careful consideration. Other provisions such as a Tax Covenant, completion accounts and buyer covenants may all form a part of a transaction. To mitigate risks, it is also important that the buyer undertakes detailed due diligence to understand the business they are acquiring pre-completion and that the Sellers make full and frank disclosures in a Disclosure Letter.

Buying and selling shares is a complex process with many factors to account for and our Business Services team is here to help every step of the way. If you would like to know more about the process and documentation involved, contact us on 01604 828282 / 01908 660966 or email BusinessServices@franklins-sols.co.uk.

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The process of buying a business can take many forms, including buying shares in a limited company, buying a trading business as a going concern or buying specific assets to accompany your existing business.

Whichever business structure works for you, our top 3 tips on buying a business is relative to them all:

1. Undertake Due Diligence

I cannot stress this enough. Buyer Beware applies and you need to make sure you know what you are buying and getting yourself in for. You wouldn’t buy a car with a rusty engine under the bonnet – buying a business is no different.

2. Get the contract right

Whatever the size of business or nature of the transaction, you need to ensure that your contract is properly written to reflect the parties’ intentions. The devil is in the detail.

3. Ensure the structure accounts for the commercial aspects of running the business

There is no point owning a business that you cannot operate or whose goodwill can be undermined immediately post-completion. The structure should be tailored to you and the business’ post-completion needs.  

Contact Us

For information on buying a business, the process and costs involved, contact our Corporate Team for an initial, confidential, no-obligation discussion and talk through your proposed purchase on 01604 828282 / 01908 660966 or email Corporate@franklins-sols.co.uk.

Holly Threlfall, Associate Partner, also worked on the transaction.

Franklins Solicitors LLP would like to congratulate All Calls Answered Limited on its successful purchase of the business and assets of Jet Virtual. Jet Virtual specialises in providing virtual office spaces and telephone answering services to various clients and businesses across the globe, with virtual office spaces available in various locations including London and other European locations such as Barcelona.

We were delighted to support on this transaction, advising All Calls Answered Limited on its acquisition of Jet Virtual and working closely with the other parties throughout.

Rebekah Hobbs, Corporate Solicitor at Franklins, said “It was great to work alongside Andi and Dimitris in this transaction and to advise on All Calls Answered Limited’s acquisition of Jet Virtual. Andi and Dimitris were a pleasure to work with and I wish them all the best in growing and expanding Jet Virtual.”

Delighted with the outcome of the transaction, Director Dimitris Metaxas said “We cannot thank the Franklins team enough, including Holly and Flora, and especially Rebekah, who was available for direct phone calls with no prior notice, on many occasions.

We feel that we chose well using Franklins for their support, knowledge, and expertise and are grateful for their counsel and input, in this strange new area of buying a business where there are no physical assets, and no employees, and no freehold or leasehold premises, dealing with parties living outside Europe.

We hope to now drive the business forward, adding Hong Kong, Melbourne, and Wall St addresses to the options we already offer our 100+ existing clients, and those new service users who will hopefully join us soon.”

We wish All Calls Answered Limited the very best in their endeavours in the future.  

For information on our wide range of Business Services, contact the team on 01908 660966 / 01604 828282 or email BusinessServices@franklins-sols.co.uk.

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Franklins Solicitors LLP would like to congratulate CanTrack Global Limited on its successful share sale to Radius Payment Solutions Limited. CanTrack Global is an industry leader in providing integrated theft recovery tracking devices for vehicles, providing real-time driver behavioural data and theft recovery solutions to a multitude of businesses.

We were delighted to support on this transaction, advising both exiting and continuing shareholders on the transaction whilst working closely with other professional advisors.

Leading the transaction, Holly Threlfall, Associate Partner at Franklins said “It was a team effort that could not have been achieved in such a tight timescale but for the hard work of the wider business services team here at Franklins, the support of Helen Brocklebank and the team at RSM and especially Peter Thompson of CanTrack Global whose hard work and dedication drove the transaction from the beginning. Peter, and all of the shareholders, of CanTrack were a pleasure to work with and I wish them all the best on their next endeavours.”

Pleased with the outcome of the transaction, Director of CanTrack Global, Peter Thompson said “Holly Threlfall and all the team at Franklins were a pleasure to work with. From the first contact, I felt in really safe hands with a professional team that really understood the process inside out. There was a real feeling on focus on CanTrack that was re-assuring for all parties, and they helped ensure the successful outcome for all parties.”

Helen Brocklebank, Corporate Finance Partner at RSM said “CanTrack have developed a market leading solution and partnership with Radius will support the business in the next stage of its growth. We are delighted to have supported the shareholders on this transaction and look forward to seeing the business go from strength to strength.”

The next chapter for CanTrack Global will certainly be an exciting one as a part of the wider Radius Group. We hope that there are celebrations all around, and a toast to a prosperous future!

For information on our wide range of Business Services, contact the team on 01908 660966 / 01604 828282 or email BusinessServices@franklins-sols.co.uk.

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Franklins Solicitors LLP would like to congratulate Support Maintenance Services Limited on its recent company restructure as an Employee Ownership Trust. We were delighted to support on this transaction, both Holly Threlfall and Andrea Smith of our corporate team working closely with Peter Miller of The Miller Partnership and Harry Walker of FRP Advisory, to transfer ownership of the Company to its employees.

This unique transaction would not be possible but for the hard work and dedication of director Hazel Scanlon, her partner Sean and the commitment of the Company’s employees who have driven the Company through the challenging year we have all faced.

Support Maintenance Services Limited is based out of Milton Keynes, providing a high quality cleaning services and office cleaning nationally to commercial clients.

Holly Threlfall, Associate Partner at Franklins Solicitors said “I have known Hazel and Sean for several years as they have explored the best options for them and the Company. I am thrilled to have worked on this transaction with them, effecting a change that not only rewards them for their continued hard work but gives back to the employees.”

Andrea Smith, Partner & Head of Business Services at Franklins Solicitors, said “I am pleased to have worked with Hazel, Sean and the Trustees in developing a structure that is a fantastic way to reward employees and allow them to gain from the success of the Company.”

Business Tax Adviser, Peter Miller, said “My congratulations to the management team. Working on a transaction such as this is always rewarding and it’s good to see the tax system working as intended to encourage wider employee ownership of businesses, in line with government policy.”

Harry Walker, Corporate Finance Director, said “We were very pleased to work with Franklins, Peter Miller and the team at the Company to deliver this sale to the Employee Ownership Trust. We wish the business all the best for the future and are sure it will thrive under this new ownership structure.”

Delighted with the outcome of the transaction Hazel Scanlon, Director of Support Maintenance Services Limited, said “After 20 years of being a director at SMS, this was a fantastic opportunity to give back to all the hard-working employees who ultimately make it all happen. Thank you to all the teams that worked on the EOT and advised on the best outcomes. Special thanks to Holly, who worked tirelessly to support all areas of the structure.”

We wish Support Maintenance Services Limited every success in the future and look forward to supporting its future endeavours.

For further information on our wide range of Business Services, contact the team on 01908 660966 / 01604 828282 or email BusinessServices@franklins-sols.co.uk.