By Georgia Jones
Solicitor
Borneo Martell Turner Coulston
YOU may think that once you have signed the paperwork and sold your business that you never need to think about it again. Whether this is true or not really depends on how well the sale agreement has been drafted (and how truthful you have been in the process). You, as the seller, will obviously want to limit your liability as much as possible; equally, the purchaser will want to keep you ‘on the hook’ should a problem arise.
Warranties
Whether you are selling using an asset purchase agreement or a share purchase agreement you will be expected to give warranties to the purchaser. These warranties are promises to the purchaser about the state of the business and because of that the purchaser will want you to make as many of these promises as possible. If a warranty you give proves to be false or misleading you can be sued and in some cases, the sale agreement may be rescinded. For that reason, your solicitor will try to limit the amount of warranties that you give and will couple them with disclosure.
Disclosure
Not everything is black and white and the sale agreement needs to reflect this. You may, for example, employ 100 employees and only one of them has started a grievance procedure, does that mean that you can’t give a warranty to your purchaser that, overall, there are no potential employee claims? No of course not, that would be too restrictive on you as the seller. Instead, you can couple your warranty with a disclosure to say ‘but for one employee there are no potential employee claims that we are aware of’.
Restrictive Covenants
You may have spent years building your business; you have the contacts, the client base and the expertise. Your purchaser is going to want your reassurance that you aren’t going to sell them your business only to take all of this with you. For this reason the sale agreement is likely to contain a ‘non-compete’ clause restricting you from setting up or joining a similar business in a certain radius for a specific amount of time. It will also seek to limit your ability to contact clients, suppliers or employees of the business being sold. How strict this is will depend on the negotiating skills of your solicitor but also the type of business you’re in.
Warranties, disclosure and restrictive covenants are just the basics of a sale agreement, there is much more to consider when selling your business. If in doubt, seek legal advice.
Georgia Jones is a commercial solicitor at Borneo Martell Turner Coulston, if you are thinking about selling your business, contact her on 01604 622101 for more information.
