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Buying a business: The legal process – Share/business purchase agreement

The share/business purchase agreement is the most important document in the transaction, and most of your solicitors’ time will be spent in preparing and negotiating it.

It will set out the key commercial terms which have been agreed between the parties, including:


If the sale is subject to certain conditions – for example, obtaining the consent of a key customer to the transfer of its contract – these will be covered in the agreement and must be satisfied before the sale can complete.

Price and payment

The buyer normally pays the price in full on completion, but you may want to hold back part of the price until a later date (a ‘deferred payment’), make the price dependent upon the business achieving certain targets in a specified period after completion (an ‘earn out’) and/or hold back part of the price in a joint account to use in settling any problems which arise after completion (a ‘retention’).

In contrast, the seller may require a deposit on exchange of contracts for the sale agreement, which may be forfeited if the buyer cannot complete the deal.

Completion accounts

You may want the price to be dependent on the value of certain specific assets, such as stock, work in progress or debtors which are valued on completion using ‘completion accounts’, with the price being adjusted downwards or upwards if the value of the assets is lower or higher than the figures which the parties have agreed in advance.


On an asset sale, the parties will normally draw a line at completion, with the seller being responsible for all liabilities before completion, and the buyer responsible for those after completion.

Pre-payments by or to the seller will also be divided pre- and post-completion. For example, if the seller has already paid rent for a period which straddles completion, the amount for the post-completion period will be added to the price you will be paying, whereas if the seller has received a deposit from a customer for work to be done after completion, the deposit will be deducted from the price.

Book debts

The agreement will govern how book debts are collected after completion. In a share sale, the book debts are automatically inherited by the buyer. In an asset sale you could agree that the seller will keep them and you will collect them on the seller’s behalf, or that you will buy them and collect them for yourself.

You will probably not want the seller contacting customers for a period after completion.


On a share sale you will automatically take on any premises owned by the target company. On an asset sale the agreement will need to specifically deal with the transfer of the premises, including obtaining the landlord’s consent if the property is leasehold.


On a share sale, the employees remain with the target company which you are acquiring. On an asset sale, the end result is similar in practice, as the regulations known as ‘TUPE’ provide that the employees’ contracts are transferred from the seller to the buyer on completion, so the employees will become employed by the buyer. This means that you cannot unilaterally change their contracts.

The seller cannot dismiss employees immediately before completion if they are surplus to requirements going forward, and nor can you dismiss them immediately after completion, without following the correct legal procedure, as either action could lead to claims against you.

If you have an existing business, you may have to select some of your own employees for redundancy, rather than making all redundancies out of the employees you inherit from the seller.

It is essential for you to get the right legal advice on all employment issues – including pensions and share schemes, which are treated differently from other employee rights on the sale of a business.

Restrictive covenants

The buyer will often restrict the seller from competing with the business, and taking clients or employees, after the sale. These ‘restrictive covenants’ must be reasonable in scope, duration or geographical area, or a court may refuse to enforce them at all.

Click here to read the full briefing series: Buying a business.

If you are looking to sell your business, please see our ‘Selling a business’ series.

For more information or guidance, please contact:

Peter Coats
Partner and Head of M&A
T. 020 7227 7441


This briefing is for guidance purposes only. RadcliffesLeBrasseur LLP accepts no responsibility or liability whatsoever for any action taken or not taken in relation to this note and recommends that appropriate legal advice be taken having regard to a client's own particular circumstances.

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