LEGAL CORNER by Owen Hill of Wollen Michelmore Solicitors
BUYING A BUSINESS OR THE COMPANY? A
client called me the other day to tell me that he had agreed to buy a business and wanted a quick deal to make the most of the summer season trade. He told me that he had given my name to the seller and could soon expect to receive the contract papers from the seller’s solicitors. I called the client just as soon as the papers ar- rived to let him know that the seller seemed to think that the deal was not for the sale of the business but a sale of the company that was running the business.
I explained that while it was common for com- panies to be bought and sold for a price that reflects the value of the business conducted by the company, the legal implications were significant.
Wollen Michelmore SOL I C I TOR S
The South Devon Law Firm
The buyer of the shares in a company takes over on the basis that all historic liabilities continue to apply but the purchaser of the business and assets of a company does not inherit responsibility for past events. This is normally enough to deter most prospective buyers of a business from buying the company that runs the business as well – but there are sometimes good reasons to explore the inherent risk of buying a company to balance the downside against the up. Companies may carry tax losses that can be used by the buyer. If there are no horrors in terms of pension liabilities or compensation claims from the past – then there can still be value added to the buyer in the purchase of the company that owns the business.
The experience, dedication and values to support you, your family and your business
Most small businesses change hands on the basis of a sale of the assets used in the enterprise, including business premises, stock in trade, the benefit and burden of existing contracts, employees, the name of the busi- ness, the website and the goodwill associated with the trade. Although there are special rules regarding employees and leases of busi- ness premises, the basic position is that a line is drawn in the sand on the day that the sale completes and the new owner is liable from that point forward.
Torquay • Newton Abbot • Paignton • Dartmouth
www.wollenmichelmore.co.uk
This firm is regulated by the Solicitors Regulatory Authority (No.563758)
When I explained all this to my client, he seemed disappointed. He understood the lower risk involved in buying the business and not the company but he told me that he want- ed the new business to be a company. So I put clauses in the contract to make the seller change the name of the existing company and created a new company for the client. I changed the name of the new company to the name of the business and the new company completed the purchase of the business from the seller. Job done..•
Dartmouth office 01803 832191
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