Buying or Selling your business

Heads of terms

Heads of terms provide the broad outline of the high-level commercial deal agreed between the parties to a proposed contract while the finer points are outstanding. They will often provide a useful road map for the final contract with the parties regarding them as being morally binding (to the extent that they are not legally binding) so that the points within the heads of terms cannot be materially renegotiated. Heads of terms show that parties are morally committed and are serious about the deal in question. They can also help to stop endless meetings and email trails between the parties.

Due diligence

Due diligence is an investigation and analysis of the viability of the business you wish to buy or merge with. A valuable risk management tool for business and company buyers, due diligence should be carried out before any sale settlements are finalised.

Legal due diligence generally covers an investigation of the following areas: corporate, commercial contracts, employment, intellectual property, information systems, environmental, health and safety, regulatory compliance, competition, litigation, property and tax. Due diligence should also provide a framework to enable an understanding of the jurisdiction in which the target company is operating.

The Contract of Sale

The Contract of Sale (Agreement) should include all terms required, using clear straightforward language. The type of contract will be tailored to meet the parties’ requirements and therefore, the document will be unique to each sale. This will apply whether the transaction is a share or asset sale, a management buy-in (MBI) or buy-out (MBO), a sale to family members, a joint venture or merger, or part sale.

Typically, an Agreement will include the sale price, completion arrangements, warranties and tax covenants, limitations on claims and third party rights. From a practical view, it will also need to deal with the non-disclosure of confidential information known to both parties and competition issues between the parties. It may be necessary to consider provisions covering situations where there are ongoing contracts or staff transferring from one employer to another.

Disclosure Letter

The Disclosure Letter usually takes the form of a letter from the seller to the buyer. It is prepared by the seller’s solicitors. It is usually divided into two parts: general disclosures and specific disclosures and will have attached to it copies of the documents being disclosed to the buyer (the disclosure bundle).

General disclosures cover certain matters that appear in public records and/or of which the buyer ought to be aware on the basis of pre-contract enquiries or searches actually made, or which a buyer would normally make. The general disclosures are often the subject of substantial negotiation between the buyer and the seller’s solicitors. Whilst it is in the seller’s interest for these general disclosures to be as comprehensive as possible, the buyer’s solicitors will seek to limit them.

Specific disclosures are the seller’s opportunity to specifically disclose actual matters which, if not disclosed, would constitute a breach of warranty. The specific disclosures are made by reference to the warranties themselves. For example, if there is a warranty within the sale agreement that the target company is not a party to any litigation, the seller would need to disclose full details of any current litigation affecting the company. Also, certain warranties may require specific information to be listed in the Disclosure Letter or included in the disclosure bundle (such as material contracts, pension schemes, etc).

Buying or Selling your business, the disclosure bundle can often be voluminous and should contain all documents referred to in the warranties and/or the specific disclosures. Two copies of the bundle will need to be prepared: one each for the buyer and seller.

Confidentiality Agreement or Non-Disclosure Agreement (NDA)

A business sale non-disclosure agreement (NDA) is a legal contract or agreement formed by the seller and a possible buyer of a business that describes the confidential information a seller wants to disclose to that buyer with restrictions to third parties. NDA is also known as Confidentiality Agreement (CA). When parties form an NDA, they build a confidential relationship, and any type of confidential and proprietary information or trade secrets listed in the NDA will be protected. If your business is for sale, an NDA will protect it as it also protects non-public business information.

Essential elements of a non-disclosure agreement include detailing the parties to the contract, the specific information that should remain confidential, and the length of time that applies.

Defining the purpose of the provision of this information, and how the information contained in the NDA can be used, should also be clearly stated. In the case of selling your business, this is likely to be for evaluating your business proposition.

You will also need to include details of who the recipient can share this information with – they may need to show their accountant, for example, or their solicitor.

Buying or Selling your business, to make this transaction you may need the following documents:


  • Confidentiality Agreement
  • Heads of Terms (incorporating exclusivity if required)
  • Commercial Property Enquiries to be raised
  • Business Enquiries to be raised
  • Searches undertaken

Contract Documents:

  • Business purchase contract
  • Assignment of property
  • Licence to assign (leasehold properties only)
  • Premises transfer (licenced premises only)
  • TUPE letter (where staff)
  • Board minutes (for limited companies)
  • Assignment of Goodwill
  • Notice of assignment (on contracts)
  • Disclosure letter

Post completion documents:

  • Notice of transfer (leasehold premises)
  • Stamp duty return
  • Application for registration of property transfer at HM Land Registry
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