Ask the Expert: Finalising the sale agreement
Paul Heaven, director at Blue Sky Corporate Finance, offers his expertise to business owners on how to put the finishing touches to a deal.
All answers are for general guidance only. Each case must be handled in the individual facts.
Q: What will I be asked to sign up to when finalising the sale and transfer ownership of a company?
The "heads of agreement" is probably the main opportunity that both of the parties concerned have to keep the legal fees down to a minimum.
Always try to define as many of the principles, variables and the points of potential conflict as possible in the "heads" because where possible the objective of this exercise has to be to try to produce a document that you can then hand to the lawyers to write up a sale & purchase agreement that reflects the deal.
The "disclosure letter" is the sellers opportunity to cleanse their soul once and this document has real teeth and claws. The principle that will govern the completion of this document is that if a matter, irrespective of how apparently trivial, is disclosed then it is highly unlikely that it is going to come back and bite the seller in the backside.
If these matters are disclosed then the buyer has an opportunity to consider the matter, to investigate further and to assess the likely risk should they choose to do so. If the matter is not formally disclosed when the seller knew about it (or ought to have known about it) and it subsequently gives rise to a loss then the buyer is highly likely to come back to the vendor to make good this loss.
The "warranties" are a list of legal undertakings that the vendor will provide to the buyer at completion. In most sale & purchase agreements there are so many warranties that they will be listed in a separate appendix. A belt and braces set of warranties will cover everything from the fact that the company has at all times complied with the law on matters of accountancy, company secretarial and taxation, property, environmental etc.
The key issue is to agree at an early stage the scope of the warranties that will/will not be given (this should be dealt with the heads of agreement) and then to sit down with the sellers management team to go through the warranties requested by the buyer, to make sure that these can be given.
Contact details
Paul Heaven
Director, Blue Sky Corporate Finance
Paul@blueskycf.com
0845 2583 759
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