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What Could Go Wrong During a Business Sale?

You have invested a lot of money, energy, and time in building up your business and now you want to sell it to cash in your chips. But, whether you want to sell your entire business or just a party of it, things could go wrong during the sale process if you are not careful.

You may be suddenly presented with deals you cannot say no to but they require last-minute changes to the sale and purchase agreements. However, this kind of environment does not give you enough chances to negotiate the sale’s fine details. It is best to avoid pitfalls and put things right.

Below are some of the instances when issues with the sale could arise:

Due Diligence

Often, sale and purchase agreements (SPAs) are a result of a lengthy investigation into the business for sale UK. With due diligence, flaws of the business can be discovered that must be dealt with in indemnities and warranties set out in the agreement.

In case a certain problem in the liability or accounts is missed, this is likely to result in the buyer overpaying for the business. Thus, due diligence should be carried out carefully by an accountant or solicitor. A business purchase can fall at the earliest stages when a problem is not identified from the get-go.

Warranties

After completing due diligence, the SPA is drafted by solicitors. When one of the warranties is not correct and the seller failed to inform the buyer about this inaccuracy before completion, the seller can be sued by the buyer for breach of contract. The seller’s obligation to inform the buyer about the warranty problem is important for the buyer as the latter could use for making their final decision.

Indemnities

In case an issue arises during the disclosure or warranty process, the buyer is likely to request an indemnity to cover any loss that results from the problem. It is necessary for both parties to have indemnities carefully drafted. Buyers will ensure the indemnity covers the problem in question while the seller ensures it’s not too broadly drafted.

Change of Ownership Clauses

In some instances, a change of business ownership can put in breach of some major contracts. It is important to identify the change of control clauses and if these clauses are found in major contracts, they should be addressed ahead of time before completion to reduce the risk of having the relationship with an important supplier or customer being terminated as a result of the sale.

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