What should you know when selling a business - Part 4

April 14, 2011 - PRLog -- “Selling a business can take several months but with the help of an experienced commercial lawyer you will complete the sale with the minimum amount of risk and have achieved the best price possible for your business,” Alistair says.

Once you’ve agreed the first nine steps: (1) disposal of the shares or assets, (2) drafted your confidentiality agreement, (3) agreed your exclusivity agreement, (4) heads of terms, (5) due diligence, (6) approvals and consents,  (7) sales and purchase agreements, (8) warranties and indemnities and (9) disclosure, Alistair now outlines the final important steps that you should consult your solicitor over during the sales process: the post-sale restrictions and how your solicitor can protect you from being sued after the business sale has completed.

1.       Having completed the sale, the buyer will obviously want to protect their new business. The seller has a great deal of information and inside knowledge on the business they have just sold, so the buyer will usually want to place a number of post-sale restrictions, also known as restrictive covenants, on the seller.

Alistair says,

“Post-sale restrictions generally fall into several areas: not to compete with the business, non-solicitation of customers, non-solicitation of employees, not to interfere with the supplies to the company.

“Without these restrictions in place there is nothing to stop the seller from contacting old and current customers with a view to encouraging them to take their business elsewhere. Or even poaching key employees and setting up a rival business.”

Post-sale restrictions will often impose a time limit, anything from six months to three years is usual, but it pays to be wary of the small print.

Alistair continues,

“It is always worth asking your solicitor to look over the post-sale restrictions to ensure they are reasonable, otherwise you might find yourself unable to work for certain companies, or in certain business areas.”

2.   The buyer has been granted a lot of rights under the warranties you have already agreed. Without a clear understanding of what additional post-sale restrictions you are agreeing to, it is possible to unwittingly breach them and leave yourself open to being sued by the buyer.

Alistair explains,

“Having spent a great deal of money on purchasing your business it is likely that the buyer will keep close tabs on everything that involves their new business.

“If they believe you are not-complying with the post-sale restrictions, then they have every right to take you to court and sue you for compensation, especially if they feel they have suffered a loss due to your actions. In this case, ignorance is no defence.”

Says Alistair,

“We always ask our clients what their future plans are so we can help them still achieve those goals after the sale has completed.”

Alistair notes,

“An experienced solicitor will ensure that a schedule is added to the sales agreement which will time-limit the buyer’s rights to make a claim. In addition he will negotiate the levels of potential claims so that the seller can’t be sued for negligible amounts, unless the sum of the entire buyer’s claims reach a certain value.

“The solicitor can also protect the seller by ensuring that if the claim is something the company is insured for, then the buyer will claim against the insurance and not the seller.”

Every business sale will be different as no two companies are the same. Not every sale will proceed in the same order as we have explained here and in the previous three articles. This is why you should always involve an experienced commercial lawyer, who can advise you if you want to sell, or buy, a business.

For more information, contact Tallents on 01636 671881


Tallents Solicitors, 3 Middlegate, Newark
http://www.tallents.co.uk


ABOUT TALLENTS

Established in 1774 and with offices in Newark, Mansfield and Southwell, Tallents Solicitors services the legal needs of private individuals, company and commercial clients and farmers in North Nottinghamshire and Lincolnshire.

We still offer a personal service to our clients and our size and structure ensures that partners are never remote from our clients. We provide a full range of legal services and our expertise covers all areas of law including:

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In 2009, Tallents celebrated 235 years, having served more than nine generations of North Nottinghamshire and Lincolnshire people. This makes Tallents one of the oldest law firms in the county and possibly the UK.



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