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Frequently Asked Legal Business Questions:
What is the difference between selling my business through an Asset Purchase Agreement and a Share Purchase Agreement?
A Share Purchase Agreement (SPA) is a document used to transfer ownership of a business. When seeking business legal advice, it’s important to understand that a Share Purchase Agreement transfers all of the business's assets and liabilities to a buyer. Note that the business must be registered at Companies House and have share capital to sell a business using an SPA. A sole trader business cannot be sold using a Share Purchase Agreement; instead, an Asset Purchase Agreement (APA) must be used to transfer the business to a willing buyer.
An Asset Purchase Agreement (APA), on the other hand, will specify the exact parts of the business being sold. Upon completion, the buyer essentially has a brand-new business, having purchased the assets and liabilities of your existing business (including assets like your business name, branding, and employees). When utilising an APA, you can choose which business debts and assets will be transferred to the buyer. Many business owners seek business legal advice when deciding whether to proceed with an SPA or an APA, ensuring that the transaction is aligned with their strategic goals and legal requirements.
What is a Disclosure Letter?
A Disclosure Letter accompanies the APA and provides details of any exceptions to the warranties given by the seller. Seeking business legal advice is crucial here, as the Disclosure Letter protects the seller from claims that might arise under the warranties due to non-disclosure after the sale. The buyer of a business will not be able to bring a claim against the seller post-completion based on any matters disclosed in the Disclosure Letter. Business legal advice can ensure that both the seller and buyer fully understand the implications of these disclosures, reducing potential legal disputes down the line.
Do I pay VAT when I sell a business?
The sale or purchase of a business is classed as an exempt transaction for VAT purposes if both parties in the transaction are, or are not, VAT registered. VAT is only payable if one of the parties involved in the business transaction is VAT registered while the other is not. When considering VAT implications, seeking business legal advice can help clarify the potential tax obligations. It is often wise to register for VAT if purchasing a business from a VAT-registered individual or business entity. However, it is always advisable to seek out professional accountant advice in addition to business legal advice before making any commitments.
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Can I forfeit my lease?
Most Leases will have a forfeiture clause. The forfeiture clause will set out the circumstances under which the lease can be forfeited such as unpaid rent for 21 days, or a breach of a fundamental covenant.
I want to sell my business, can my lease be transferred to a buyer with the sale?
Your lease will contain an assignment clause, which will set out the conditions under which you may assign the lease or confirm if you cannot assign the lease (alienation clause). Most leases will permit assignment, provided that, in addition to other conditions, the current tenant enters into an authorised guarantee agreement (AGA), or the new tenant finds another acceptable guarantor to give the landlord security. Seeking business legal advice can help you navigate these clauses, ensuring you fully understand the implications and requirements involved in assigning your lease.
Is my purchase a linked transaction for Stamp Duty Land Tax purposes?
Failing to pay the correct amount of Stamp Duty Land Tax on time may result in fines from HMRC. If you or your spouse purchased more than one property (even in different names) it is possible you may have underpaid Stamp Duty Land Tax if the transactions is deemed as linked by HMRC. If you purchase a property and your spouse purchases a nearby piece of land, you may have unknowingly been subject to the greater band of Stamp Duty Land Tax than the one you paid.
What is exchange of contracts?
The exchange of contracts enters you into a legally binding promise with the other party to proceed with the transaction. From this point, you are legally required, under the contract, to fulfill your side of the transaction in exchange for the other party completing theirs. Seeking business legal advice at this stage is essential, as both parties must offer something of value in return for the other fulfilling their part of the deal for it to be binding. This ensures clarity and protects your interests as you move forward with the transaction.
Got a different legal question about property transfers or your lease? Why not get in touch with legal experts with years of legal experience at Legal Answers Pro today.
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