Business Purchase And Sale Disputes – Frequently Asked Questions
Anyone involved in a business purchase and sale agreement, whether buying or selling, would want it to be plain sailing and go without a hitch. Unfortunately, however, problems do crop up occasionally.
There are a number of scenarios in which either party may run into some bother during the business purchase and sale process. Ieuan Jones, head of our Dispute Resolution Team, delves into these circumstances and answers the Frequently Asked Questions we get about them.
I am selling my business. How do I ensure I get a “clean break” free from any reprisals once it’s sold?
If you are selling your business, it is understandable that, as soon as the sale is complete, you would want to put it all behind you as quickly as possible, allowing you to head off into the sunset on your new adventure.
However, the buyer, for their part, will also very likely want to agree certain protections once the sale is done, in case they are sold a lemon.
Both parties will be wise to get all of their terms of sale down in a written business purchase and sale agreement, which should set out exactly what each of them wants from the transaction as clearly as possible.
This should hopefully mean that any problems that crop up afterwards can be contained quickly and in line with the contract, rather than continuing to be a headache for both of them months or years later.
What types of protections might a buyer insist on being included in a business purchase and sale agreement?
As well as including the expected terms of sale (such as terms dealing with company assets, stock, shares, property and employees) there would normally be other clauses in the business purchase and sale agreement, which the buyer would insist on the seller personally signing up to.
Such clauses include warranties and indemnities. With warranties, you essentially promise (or “warrant”) as seller that the way you have represented the company up to the point of business sale is true and accurate, including all the due diligence accounting figures you presented the buyer to convince them to buy it. You may also be asked to provide additional protection (an “indemnity”) for certain eventualities as well.
If you are properly advised in the transaction, then the seller’s warranties and indemnities should have limits on them. These may include limits on amounts being indemnified, as well as time limits, so you do not have them hanging over you for all time.
Being advised by a legal representative on the warranties and indemnities you are signing as seller is a crucial part of the process in any business sale.
Whose responsibility is it to draft the business purchase and sale agreement?
The seller’s solicitor usually does the initial draft – which would mean they have “first pass” to put in there what they consider to be the reasonable terms of the agreement to sell. The business sale agreement would then pass over to the buyer’s solicitor for them to add anything they feel is appropriate from their client’s perspective, and the parties will work forward from there.
I bought a business a while back, and I am sure the seller misrepresented what they sold me. Is there anything I can do?
If the business purchase and sale agreement has warranties in it, and you believe that the seller has breached them, then it is open to you to sue the seller for breach of warranty and claim any losses you have incurred as a result of their breach.
If the seller provided an indemnity in the business purchase and sale agreement, then they may also have indemnified you for certain losses. You should check the wording of the agreement because, as previously mentioned, the warranties and indemnities may be limited in certain ways.
There is also legislation that allows a person to claim against another party, where there has been a misrepresentation made by them that has lost them money. Be warned however that the terms of the written agreement could limit or exclude a party’s ability to claim for misrepresentation.
If in any doubt, or if you need to discuss, then this is a scenario in which you should certainly seek professional guidance. Our team of expert business dispute resolution solicitors are on hand in this situation and will be able to provide you with the effective legal advice you need.
I am supposed to be buying a business but I’m starting to get cold feet. Can I pull out with no repercussions on me?
The answer to this question would depend on which stage of the transaction you are at. If it is early on in the process and nothing has been agreed upon or set down in writing via a formal business purchase and sale agreement, there will probably be very few (if any) repercussions if you decided not to go ahead.
Conversely, at a very late stage where you have already put pen to paper to buy the business, it is likely that you are leaving yourself wide open to a business sale dispute. The seller may have grounds to bring a breach of contract claim against you for non-performance of your side of the bargain.
The further into the process you are, the more likely it might be that there could be repercussions on you for pulling out. If the business purchase and sale agreement has already been signed on all sides, then a business disputes claim is likely to be brought against you in line with the terms of the contract itself.
Also, if the seller has deployed substantial resources on the understanding that the sale is going ahead, then it could be the case that they are able to claim back from you their losses they incurred in reliance on the promise you made to go ahead with the purchase.
How to seek business sale dispute advice
As always, in any situation where you are in a business sale dispute and you need some guidance to help you through the situation, it is best to seek out legal advice. Our specialist business disputes resolution solicitors in Plymouth can help you. Whether you are the buyer or seller in the process, please get in touch by calling 01752 203500 or emailing enquiries@GAsolicitors.com for a free consultation about your problem.
Ieuan will also be providing an Introductory Webinar on Business Sale & Purchase Disputes aimed at legal professionals later in the year – if you are interested, watch this space and find us on LinkedIn for further details as to how you can access the webinar once it’s available.
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