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Buying a business: The legal process

We explain the legal process in our series of briefings about how to buy a business.

Heads of agreement

Once the parties have agreed a deal in principle, they will often draw up heads of agreement (also known as heads of terms, an offer letter or a letter of intent).

The heads are designed to identify the main issues (e.g. deal structure, price and timetable) and act as a ‘route map’ for the rest of the transaction. They will be assumed to be legally binding unless stated otherwise. If you do not want to be committed to the deal until you have signed a formal sale agreement, you must make sure the heads state that they are not legally binding.

Some provisions will normally be legally binding. For example, you may want a period of exclusivity during which the seller cannot sell the business to anyone else and must pay your costs if it does so. In turn, the seller will often require you to keep confidential any information provided to you during the negotiations or even to pay a deposit which the seller will keep if you pull out of the deal.

It is important to avoid spending too long on the heads – especially if they are not legally binding – as you can waste time and costs negotiating them.

Due diligence and sale agreement

After the heads have been finalised, you will carry out your investigation of the target business and your solicitors will prepare the sale agreement (see below). It is generally better for your solicitors to draft the agreement because this can help your negotiating position.

Exchange and completion

When the documents have been finalised, each party will sign the sale agreement and give its signed copy to the other party (‘exchange of contracts’). The parties will be committed to the deal at this stage, although there may be a delay before completion.

On completion, you will pay the price and the seller will transfer the shares or assets. You may need a period between exchange and completion, for example, to obtain any necessary consents from third parties, such as customers (the seller will be reluctant to tell customers about the sale until a formal sale has been agreed) or, in the case of an asset sale, to consult with employees.

In addition, in a large transaction, the acquisition could require regulatory approval under competition law. You should try to identify these issues at the outset and perhaps make the acquisition conditional on resolving them before completion.

How long does it take?

The length of the process can vary enormously between transactions, but you should normally anticipate at least six weeks from the signing of the heads of agreement until completion.

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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