Legal Services
More Information
Bridge McFarland can offer you practical, uncomplicated advice, support & guidance when you need it most. Whether it be an employment dispute, family advice, an accident or negligence, life planning or moving house, let us help you.
Legal Services
More Information
Our commercial team in Lincoln, Hull, Market Rasen and Grimsby prides itself on its sound business sense, commercial insight, local knowledge and first class understanding of the relevant legal disciplines ranging from employment law, business contracts, dispute resolution to agriculture and property development. From company formation to sale, succession, dissolution or dispute resolution, you can trust our team to deliver first class service and results.
Photograph of Chris Green
Chris Green
Senior Solicitor
View Profile
Photograph of Janet Wilson
Janet Wilson
Senior Conveyancing Executive
View Profile
Photograph of Rob Ripley
Rob Ripley
View Profile
Photograph of Lee Whiting
Lee Whiting
View Profile
Photograph of Lisa Moore
Lisa Moore
View Profile
Photograph of Ian Sprakes
Ian Sprakes
View Profile
Photograph of Leanne Keating
Leanne Keating
View Profile
Photograph of Mike Wilson
Mike Wilson
View Profile
Photograph of Chris Hubbard
Chris Hubbard
View Profile
Photograph of Patrick Purves
Patrick Purves
View Profile

Frequently Asked Questions

Looking for some answers? Check out our helpful FAQs section.

Frequently Asked Questions
Home > Why BMcF? > Frequently Asked Questions > Mergers & Acquisitions
Change FAQ Categories

Mergers & Acquisitions


Our corporate team has many years experience dealing with the sale and purchase of businesses of all types and sizes.


Mergers & Acquisitions
Can I continue to work in the industry after completion?
The purchaser is likely to want to restrict what you can do following completion of the sale. The sale agreement will therefore contain “restrictive covenants” which prevent you from competing with the business you have sold for a specific period and within a specific geographical area. How much you are restricted is a matter for negotiation and can have an impact on the sale price.
Can I pull out after signing heads of terms?
Heads of terms generally set out the headline terms of the transaction and do not commit either seller or purchaser to the deal. Either party will usually be able to withdraw after signing heads of terms.

However, it possible to include commitments in the heads of terms which require the withdrawing party to cover the costs of the other party if they have withdrawn without good cause. You will appreciate that the purchaser will want to withdraw if, having carried out due diligence, he finds unexpected information about the business.

Do I charge VAT on top of the price?
In the majority of business sales (as opposed to share sales), it is possible to avoid having to charge VAT on the sale price. If the sale can be treated as the transfer of a going concern (“TOGC”) no VAT would be payable.

The transfer of a business as a going concern will not usually be regarded as a taxable supply of goods or of services for the purposes of value added tax.  However, for this exemption to apply, it is essential that the business or part of it is transferred as a going concern and that the assets are to be used by the purchaser in carrying on the same kind of business as that carried on by the seller.  If the sale relates to part only of a business, it must be a part which can be operated on its own.  There must be no break in trade.  Furthermore the purchaser must already be a registered person for VAT purposes or someone who will be immediately registerable as a result of the transfer.

How do I keep my information private?
This is often a concern for sellers when providing potential purchasers with sensitive information about their business. Any prospective purchaser will need to see information about your business so as to make an informed decision as to whether to proceed and at what price.

However, you need to ensure that the purchaser cannot walk away from the deal and use the information you have provided for their own benefit. You can therefore enter into a “confidentiality agreement” or “non-disclosure” agreement with the purchaser. These documents contain details of what information will be regarded as “confidential” and to whom it can be disclosed (for instance, professional advisors). They will also deal with what happens if the purchaser breaches your confidentiality.

How do I protect myself against warranties?
The seller should make “disclosures” against the warranties. The disclosures are usually made in the form of a letter (often call “the disclosure letter”) from seller to purchaser. The disclosure letter will fulfil three functions:
  • the seller will provide information requested by the 'information seeking' warranties;
  • the seller will seek to impute certain knowledge (particularly matters of public record)to the purchaser; and
  • the seller will disclose specific information which might render one or more warranties untrue, again on the basis that the purchaser has agreed to proceed with the transaction despite having that knowledge and cannot therefore subsequently claim compensation under the warranties relying on that information.
How long does it usually take?
As with any matter, this depends on a number of factors, some of which will be outside of your control. Preparation for the sale can begin months before the actual transaction takes place. You can start to gather together information about the business for the purchaser to inspect (see comments regarding “What is due diligence”).
How should the purchase price be paid?
Ideally, you should be paid the full purchase price on completion of the sale. However, some purchasers may want to defer (i.e. delay) part of the payment. This is often done for legitimate reasons, such as cash flow, etc.

By accepting a deferred payment, you are at risk of the purchaser becoming insolvent during the interim period. It is therefore common for the overall price to be increased when the payment is deferred (or for interest to be paid on the deferred element until payment is received). 

Before agreeing to accept a deferred payment, you should ensure that you have carried out your own checks on the financial standing of the purchaser. You should also seek suitable security from the purchaser. This can include personal guarantees, legal charges over property, etc.

What are heads of terms?
These are usually non binding documents which set out the key points which have been agreed about the sale. They will include details of the price, the business assets to be sold, the proposed timetable and any specific conditions to which the sale is subject.

They are the starting point for the deal and will enable your legal advisors to prepare drafting the sale documentation.

What are warranties?
Having satisfied himself that the transaction is commercially viable, the purchaser will seek warranties in the business sale agreement. For practical purpose, there are three reasons why a purchaser will seek warranties:
  • to reserve the right to recover damages for breach of warranty;
  • to require the disclosure of information; and 
  • to 'force' the seller into disclosing full and accurate details of particular matters.

The warranties are in effect promises by the seller about the state of the business. For instance, the seller might warrant that the business is not in dispute with any employees. If that warranty proved to be untrue, the purchaser would have a financial claim against the seller.

What happens to my employees?
In a business sale (as opposed to a share sale) the rights of employees are protected when the business is sold as a going concern. This is by virtue of the Transfer of Undertakings (Protection of Employment) Regulations 1981 (“TUPE”). Under TUPE, all employment rights of employees are automatically transferred to the purchaser, so that continuity of employment is preserved.

The purchaser may want you to trim down your workforce before the sale takes place. If any employee who is dismissed ‘for a reason connected with the sale’ is deemed to have been unfairly dismissed, they may have a claim against the business for compensation. If this is not done for the right reasons and following the right procedures, this could lead to a claim for unfair dismissal against you. It is vital that you take professional employment law advice before you dismiss any employees or alter their terms and conditions in these circumstances.

What is an earn out?
This is another form of deferred payment. When an earn out is used, part of the sale price will be based on the future performance of the business. This will usually involve a cash payment on completion of the sale, with further payments based on annual profits of the business for fixed periods following completion.

As with any deferred payment, there is a risk of non payment. Moreover, if the business underperforms after completion, you may not receive any further payments. For this reason, it is common for the seller to continue running the business (or part of it) as part of any earn out arrangement. This will provide the seller with an element of control in anticipation that they can achieve the earn out targets.

What is due diligence?
This is the process by which the prospective purchaser carries out investigations into your business. Much like when buying a property, the purchaser needs to be satisfied that what he is buying is worth what they are paying for it and that there are no ‘skeletons in the closet’.

Ordinarily, this will involve the seller providing replies to detailed written enquiries. The enquiries will cover a number of issues, ranging from employee information to disputes with customers. It is important that the information is provided at an early stage so as to avoid a delay in the sale.