Merger and acquisitions: The legal checklist


If you are thinking of selling your business, it is important to seek professional advice (both legal and accountancy) as early as possible. This will ensure that appropriate steps are taken to maximise any tax reliefs that may be available to you.

Taking legal advice at an early stage will enable us to give your business a health-check and look at any issues that may be uncovered by a prospective buyer undertaking due diligence. By making sure everything is in order, we can ensure the sale process runs as smoothly and efficiently as possible.

Share sale or asset sale?

Whether a transaction is going to be a share sale or an asset sale is a fundamental consideration. Under a share sale, the buyer effectively steps into the shoes of the seller and therefore inherits all assets and liabilities of the target business – a “warts and all” transaction. Under an asset sale, the buyer can choose which assets and liabilities it purchases from the seller, which helps to ‘de-risk’ the transaction from a buyer's perspective.

There are advantages and disadvantages to each, with the tax implications often being the biggest consideration. For a seller, a share sale is usually more tax-efficient, as the proceeds of sale go directly into the hands of the shareholders and valuable tax reliefs may be available. An asset sale is less tax-efficient, as the sale proceeds are received by the company rather than directly to the shareholders.

A share sale has little impact upon third parties as the trading company remains the same.  In contrast, an asset sale can generate a lot of additional paperwork. Important customer contracts might need to be assigned or novated as well as any property lease which will require landlord consent. Asset sales require compliance with legislation that protects the rights of employees of the business, which brings an added administrative burden (as noted further below).

Purchase price

There are several issues to consider relating to the purchase price: 

  • part of the purchase price may be paid on completion and part deferred until a later date
  • an earnout may be included, where the seller has the right to receive additional payments dependent on the future performance of the business
  • the price payable by the buyer may also be adjusted by virtue of the exact financial position of the company at completion,  which will be determined by reference to completion accounts.

Warranties and indemnities

 Warranties and indemnities provide protection for a buyer for an agreed period of time following the sale of the shares. They are subject to specific agreed limitations on the seller's liability in terms of time and amount.

The buyer might require that part of the purchase monies are held in a retention account for a period of time following completion as security for any amounts that may become due to them in respect of warranty or indemnity claims.

Restrictive covenants and tax covenants

 Restrictive covenants given by the seller are intended to protect the value and goodwill of the business following the sale. They typically prevent the seller from competing with the business or poaching key staff, suppliers or customers. Restrictive covenants need to be carefully considered so they are reasonable and proportional in terms of time and scope in order to be enforceable.

Additionally, the inclusion of specific tax covenants offer a buyer protection for tax liabilities that arise due to the trading of the company prior to completion.


 Employees can be one of a business’ greatest assets and a buyer will be keen to ensure key staff are motivated and reassured following the sale. This may mean new service agreements are necessary to ensure retention. In the case of an asset sale, compliance with the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) is necessary in order to protect the rights of employees of the business.

Thrings’ highly experienced Corporate Team can provide advice tailored to your individual situation, helping you to realise your commercial ambitions.

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