1st April 2025
Are you considering purchasing the assets of a business? When navigating an asset purchase, it is important to be well-informed and prepared, to ensure a successful transaction.
Joanna Convey, Commercial & Corporate Solicitor at Myers & Co, outlines some of the key documents that buyers will encounter during an asset purchase.
When buying a business, a buyer can either buy the shares in the limited company that operates the business, or they can buy some or all of the assets that make up the business.
An asset purchase offers buyers greater control and flexibility. A buyer can select the assets they want to buy and leave behind those they do not. They do not have to take on any of the existing liabilities of the business, unlike a share purchase.
We recommend that a buyer takes financial and tax advice from their accountant at an early stage to determine which route (share purchase or asset purchase) is the most appropriate for their circumstances.
A buyer would expect to see the following documents:
Once the structure of the transaction has been agreed, the seller will often request that the buyer signs a confidentiality agreement (or non-disclosure agreement) to protect the information that the buyer obtains about the seller’s business.
This reduces the risk of confidential information disclosed during the negotiation process being shared with third parties.
The heads of terms (also known as letters of intent or heads of agreement) outline the principal terms agreed upon by the parties. The heads of terms do not legally force the parties to conclude the transaction, but they serve as written confirmation of the agreed terms and set out the timetable for the sale and the obligations of both parties.
In certain situations, where a buyer needs to commit a significant amount of time and expense to the transaction, the buyer may ask the seller to sign an exclusivity agreement.
This ensures that the seller will not negotiate with any other potential buyers for a certain period, giving the buyer time to negotiate and conclude the transaction with the seller.
During the due diligence process, the buyer investigates the assets and any liabilities they plan to acquire to ensure they have a comprehensive understanding of the business. The buyer will present the seller with a legal due diligence questionnaire which sets out a list of questions about the business for the seller to answer.
The APA is a legal document that sets out the terms and conditions of the sale. The main provisions include the parties involved, the assets to be transferred, the purchase price and the payment terms.
The APA also contains warranties from the seller about the business. Warranties fulfil two key objectives: to provide the buyer with a remedy if the statements made prove to be incorrect and the value of the business is reduced as a result; and to encourage the seller to disclose all relevant information to the buyer.
The seller’s solicitor prepares a letter which discloses facts and information about the business which qualify the warranties set out in the APA.
If the warranties made prove to be untrue, the buyer will have a claim for breach of contract against the seller, but if the facts are adequately disclosed in the disclosure letter, no claim arises for breach of contract.
At Myers & Co, our experienced team can provide comprehensive support and guidance through each stage of an asset purchase, from initial negotiations to finalising the Asset Purchase Agreement.
For more information or assistance with asset purchases, please contact Joanna Convey, Commercial & Corporate Solicitor at Myers & Co, on 01782 525029 or email joanna.convey@myerssolicitors.co.uk. Myers & Co has an office in Stoke-on-Trent, Staffordshire.
