Posted by Elizabeth Gore-Jones
on 3 February 2015
If you are buying your first business the whole process may be a little overwhelming.
Here, we will give you a basic outline of what to expect.
1. If a business broker is involved in the sale they will often give you a contract to sign;
2. You should then have that contract reviewed by your solicitor. Your solicitor will give you advice, so you know what you are signing, and redraft or negotiate the contract on your behalf;
3. Once it is in a form you are happy with, you will sign the contract and pay the deposit;
4. It is then given to the seller. If the seller accepts your offer, the seller will sign the contract and give you a copy. If not, they may seek to renegotiate certain parts of the contract. They may just refuse your offer and refund the deposit you have paid;
5. Presuming the contract is proceeding, it will usually be conditional upon certain matters occurring for example:
5.1 finance approval;
5.2 satisfactory due diligence enquiries;
5.3 the lease being satisfactory; and
5.4 the landlord consenting to the assignment of the lease to buyer.
6. Dates are usually set for the satisfaction of the conditions. For example, a contract may be conditional upon finance being approved within 21 days of the date of signing the contract. If finance has not been approved by that date then the buyer may terminate the contract.
7. Some contracts provide that the buyer has to terminate the contract if a condition is not satisfied or it is deemed to be satisfied. So, if the finance has not been approved but the buyer doesn't terminate the contract within 21 days then the buyer may still be required to purchase the business even if they don't have the money! It is really important to be aware of your obligations under the contract so that you don't get stuck.
8. Your solicitor will undertake due diligence enquiries for you. This means the solicitor will undertake a number of searches to help to ensure you are buying what you think you are buying and will give you advice about those searches. Some searches which may be undertaken include:
8.1 if the seller is a company, then a company extract;
8.2 PPSR searches to ensure there are no registered interests over the assets of the seller (these will need to be released at settlement because you do not want to purchase assets that may actually belong to someone else!);
8.3 Business name search;
8.4 Food hygiene search;
8.5 Trade waste search;
8.6 Bankruptcy search is the seller is an individual; and
8.7 Property search.
9. Your solicitor will need to review the lease (if there is one) and give you advice about that. The contract should be conditional upon you being satisfied with the terms of the lease. It should also be conditional upon the landlord consenting to the assignment of the lease to you (or granting a new lease). You will be required to sign an assignment of the lease and a deed of covenant. Your solicitor will review these for you and give you advice and negotiate if necessary.
10. Presuming all of the conditions have been met the settlement will proceed.
11. The solicitors will make adjustments to the purchase price payable at settlement. Adjustments may include apportionments of rent, employee entitlements and other contracts.
12. If you are being financed your solicitor will deal with your financier to advise them of your requirements for settlement and how the money will be made available.
13. Your solicitor will then attend at settlement on your behalf. At settlement the purchase price will be paid and your solicitor will collect documents and other things required to transfer possession to you.
14. You will not usually attend at settlement as more often than not you will be at the business when settlement is taking effect. You will need to do a stocktake with the seller and arrangements will need to be made for you to take over and operate the business.
15. If a franchise is involved there are a few more steps involved. These include:
15.1 your solicitor will review the franchise agreement and the contract should be conditional upon you being satisfied with the franchise agreement;
15.2 the franchisor will need to agree that you can purchase the business and to grant you a franchise. Again, the contract should be conditional upon this;
15.3 you may be required to undertake training with the franchisor before settlement can proceed.
Remember this is a brief overview. All contracts are different and all buyer's and seller's needs are different. The terms of the contract should be negotiated to reflect the requirements of the parties.
This information is of a general nature only and is not to be relied upon as legal advice. You need to seek legal advice.
