For many buyers, a partial acquisition can be an effective way to become a business owner, expand into new markets, acquire valuable assets or gain access to an established customer base. On the other hand, partial sales can help business owners generate much-needed capital, support future growth, facilitate succession planning, or form part of a wider exit strategy.
Whatever your reason for buying or selling part of a business, the decisions you make throughout the process can have far-reaching legal, commercial and practical implications. This guide explains how to buy or sell part of a business, as well as exploring the key considerations, risks and legal challenges involved.
Choosing a structure
When considering a partial sale or acquisition, one of the first things to determine is whether you will be buying or selling shares or assets.
A share purchase or sale involves transferring ownership of shares in a company. The buyer takes on ownership of the company itself, including its assets, liabilities and contractual relationships.
Share purchases and sales can be an effective way to transfer ownership of an existing company whilst minimising disruption to the day-to-day operation of the business. Whether it’s a management team buying into a business, a family member taking on greater responsibility or an external investor bringing fresh expertise and investment, share transactions can support a wide range of commercial objectives.
An asset purchase or sale is limited to specific assets, contracts or operations rather than the company itself. This can provide greater flexibility, allowing the parties to clearly define what parts of the business will transfer, whilst enabling a seller to retain complete ownership of other parts of the business.
Asset purchases or sales can be an effective way to acquire or sell specific parts of a business without transferring ownership of the company itself. This can be particularly attractive where the parties only wish to transfer certain assets, operations or business activities, whilst retaining others. Common examples include the sale or acquisition of a particular division of a business, intellectual property, equipment, premises or stock.
The transaction structure you choose can have significant legal, tax and commercial implications. Given the importance of this decision, it is often worth seeking expert advice before making a choice. Our corporate and commercial solicitors can help you determine which structure is most appropriate for your circumstances, taking into account your commercial objectives and any wider considerations, such as commercial property, employment, intellectual property or regulatory issues.
How to buy or sell business assets or shares in a private limited company
Although every transaction is different, most share and asset purchases follow a similar process:
1. Agree the key commercial terms
The parties will usually agree the key commercial terms first, often documenting these in Heads of Terms. This will typically include the purchase price, payment arrangements and any ongoing involvement in the business. In an asset transaction, the parties should also clearly identify which assets and liabilities will be included or excluded from the sale.
2. Carry out due diligence
Before committing to the transaction, the buyer will normally carry out due diligence to better understand the business, the assets being acquired and any potential issues. The scope of due diligence will vary depending on the transaction structure and the nature of the business.
3. Negotiate the legal documents
The parties will then negotiate the legal documentation. In a share transaction, this will often include a Share Purchase Agreement and, where appropriate, a Shareholders’ Agreement. Asset transactions will usually require an Asset Purchase Agreement, together with any documents needed to transfer specific assets, contracts or intellectual property.
4. Complete the transaction
Once the transaction documents have been agreed, the parties can complete the transaction and transfer the shares or assets.
5. Deal with post-completion formalities
Following completion, the parties may need to deal with post-completion matters, such as updating company records, making Companies House filings, transferring contracts or notifying customers, suppliers or regulatory bodies.
Experienced solicitors, accountants and agents can all add value to both buyers and sellers at each of the above steps, speeding up the process, helping the parties to avoid pitfalls and minimise risk. Drawing on their extensive experience advising clients on both sales and purchases, our corporate and commercial solicitors can help you navigate this process effectively, protecting your interests and helping you achieve the best possible outcome.
For a broader overview of the business purchase or sale process, please refer to our selling a business checklist.
Key considerations when buying or selling shares in a private limited company
Documentation
Buying or selling shares in a private company involves several key legal documents. Getting these right helps deliver a smooth transaction and can reduce the chances of disputes further down the line.
These typically include:
- Share Purchase Agreement (SPA) and Disclosure Letter: the principal documents governing the transaction, covering matters such as the purchase price, payment arrangements, warranties, disclosure of known issues and completion arrangements.
- Shareholders’ Agreement: particularly important where two or more shareholders will continue to own and operate the business together following completion. It can deal with decision-making, dividend policy, funding obligations, deadlock provisions and exit arrangements.
- Articles of Association: the company’s Articles may need updating as part of the transaction. Standard Articles are rarely designed for multiple owner-managers and may not provide adequate protection.
- Board minutes, shareholder resolutions and Companies House filings: these corporate formalities ensure the transaction is legally effective and properly recorded.
The documents required will vary depending on the nature of the transaction and the structure agreed between the parties. Consulting a solicitor with experience drafting and reviewing commercial contracts and corporate documents at an early stage can help ensure the documentation accurately reflects the commercial agreement reached and protects your long-term interests.
Due diligence
It’s natural to focus on turnover and profit figures when buying into a business. However, effective due diligence should take a much broader view of a business’s operations.
Before purchasing shares, buyers will usually carry out due diligence to better understand the company they are investing in and identify any potential issues. Depending on the size and nature of the transaction, this may include reviewing:
- Financial information and company accounts
- Commercial contracts
- Employment matters
- Property arrangements
- Intellectual property ownership
- Regulatory compliance
- Existing disputes
- Tax liabilities
Sellers should be prepared to respond to reasonable due diligence enquiries and provide supporting documentation. Having this information readily available can help keep the transaction moving, avoid unnecessary delays and increase buyer confidence.
The scope of due diligence will vary depending on the transaction, but a thorough review can help both parties identify and address potential issues at an early stage.
Due diligence can have a significant impact on the speed of the transaction, the price agreed and the level of risk each party takes on post-completion. Our corporate and commercial solicitors can guide you through the process, helping you prepare for due diligence, ensure enquiries are made appropriately, document disclosures effectively and support you through any subsequent negotiations.
Personal guarantees and funding
Before proceeding with a share purchase, buyers should understand how the acquisition will be funded, whether any external finance will be required and if they will be impacted by the company’s existing borrowing arrangements.
For example, if the business has existing loans or overdraft facilities supported by personal guarantees, buyers should establish whether those guarantees will remain in place, be released or need to be replaced following completion.
Sellers should also consider how the purchase price will be paid. In some transactions, payment may be made in stages or linked to the future performance of the business.
Funding arrangements and personal guarantees can have a significant impact on the level of risk each party is taking on. Taking advice at an early stage can help ensure the proposed arrangements are commercially appropriate and fully understood by everyone involved.
If the transaction involves external funding or personal guarantees, our guide to personal guarantees explains some of the key issues business owners should consider.
Management rights and protections
Buying shares in a company does not necessarily mean you will become a director or have control over how the business is run. The level of influence a shareholder has will depend on the size of their shareholding and the rights attached to those shares.
Before proceeding with a transaction, the parties should carefully consider how the business will be managed following completion. Key questions include:
- How will important business decisions be made?
- Will certain decisions require unanimous consent?
- How will profits be distributed?
- What happens if the shareholders disagree?
- What happens if a shareholder wishes to leave the business or sell their shares?
Many of these issues can be addressed through a Shareholders’ Agreement and appropriate provisions within the company’s Articles of Association. Setting out management rights and shareholder protections at the outset provides clarity for all parties and can help prevent costly disputes later on, underlining the importance of seeking expert legal advice.
Shareholding structure and decision-making
The percentage of shares being bought or sold can have a significant impact on a shareholder’s ability to influence key decisions and the overall direction of the business. Buyers and sellers should therefore ensure they are comfortable with the level of influence they will have following the transaction. It is also important to remember that decision-making rights may be affected by other arrangements, such as the company’s Articles of Association or a Shareholders’ Agreement.
Particular care should be taken where shares are held equally between two parties. Whilst a 50:50 ownership structure may appear fair, disagreements can arise if there is no clear mechanism in place to resolve disputes or break a deadlock.
Before proceeding with a transaction, the parties should consider whether the proposed ownership structure accurately reflects their intended roles, responsibilities and involvement in the business.
Key considerations when buying or selling business assets
Defining the scope of the transaction
In a partial asset sale or acquisition, the parties are not transferring the whole company, so it is important to clearly define the scope of the transaction. The buyer should be clear that they are acquiring the assets needed to operate the relevant part of the business, whilst the seller should ensure they are not transferring assets required for the part of the business they are retaining.
This may include property, equipment, customer contracts, employees, intellectual property, goodwill or other key assets.
Both parties should also consider whether any liabilities are transferring as part of the transaction. This may include liabilities connected with employees, customer obligations, existing contracts, disputes or debt.
Buyers and sellers do not always agree on which assets and liabilities should be transferred. Whilst this can often be resolved during negotiations, you should always ensure that the final transaction aligns with your commercial objectives and does not create unnecessary risk after completion.
Identifying the assets that should be included in a transaction and understanding which liabilities may transfer is often more complicated than people expect. Seeking legal advice from a solicitor with experience handling business transactions can help you avoid common mistakes that may have significant legal and commercial consequences.
Transition arrangements
As you can imagine, separating two parts of a business can present significant legal, commercial and logistical challenges. Clearly setting out how the separation will work and putting appropriate transitional arrangements in place can be key to the ongoing success of both parties.
It is common for businesses to continue sharing resources, such as premises, IT systems, intellectual property, branding or administrative and finance support, for a period after completion. Transitional arrangements can help achieve a smooth separation, minimise disruption to operations and maintain customer and supplier relationships whilst both parties adapt to the new structure.
In some cases, the seller may also continue to support the buyer for a period after completion, sharing their knowledge and expertise as the new owner establishes themselves.
Any transitional arrangements should be agreed in advance and clearly documented, either within the Asset Purchase Agreement or in a dedicated Transitional Services Agreement (TSA).
Contracts and third-party consents
In an asset purchase, commercial contracts do not always automatically transfer to the new owner as they would in a share purchase. As such, it is essential for buyers to ensure that any contracts that are fundamental to the value of the transaction can be transferred, including not only customer contracts but also agreements with suppliers, lenders and landlords.
For example, if a business leases a property, the seller may need to obtain a licence to assign from their landlord in order to transfer the lease to the buyer.
Identifying all key contracts and establishing whether third-party consent is required at an early stage can help avoid delays later in the transaction. Typically, the seller will approach the relevant third parties once Heads of Terms have been agreed, as obtaining consent and negotiating any required assignment or novation documentation can take time and may delay the transaction if not addressed early.
Where third-party consent, licences or contract novation is required, our corporate and commercial solicitors, working alongside colleagues in our Commercial Property team where necessary, can manage the process and prepare the required documentation.
Employees and TUPE
Where employees are transferring as part of an asset sale, the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) may apply. Typically, employees working within the part of the business being sold will transfer to the buyer automatically, retaining their existing terms of employment, including pay, benefits and responsibilities.
Buyers will therefore want to review details of the workforce at an early stage, including employee roles, employment contracts and any existing employment issues or disputes.
Both buyers and sellers should familiarise themselves with the TUPE process and any obligations it may place on them, including requirements to provide employee information and, in some circumstances, inform and consult affected employees.
As TUPE can have a significant impact on the structure, cost and risk profile of a transaction, it is important to seek employment law advice at an early stage. Our employment law solicitors have a proven track record advising business owners on their obligations under TUPE and the risks associated with employee transfers.
Tax considerations
Asset sales and share sales can have very different tax implications. Whether you are a buyer or a seller, you should always seek advice from an experienced accountant or tax specialist to ensure the transaction is structured as tax efficiently as possible, whilst still achieving your wider commercial objectives.
How long does it take to buy or sell part of a business?
The timescale for buying or selling part of a business will depend on the complexity of the transaction and the responsiveness of all parties involved.
Simple transactions can sometimes complete within a few weeks. More complex transactions involving due diligence, funding arrangements, third-party consents or negotiations over shareholder protections may take several months or more.
Asset transactions can sometimes take longer where employees are transferring under TUPE, key contracts require assignment or novation, or transitional arrangements need to be put in place following completion.
There are a range of pitfalls that can unnecessarily delay transactions. Drawing on their experience advising buyers and sellers, our specialist solicitors can help you navigate the process efficiently, anticipate potential issues and keep your transaction progressing.
Do you need a solicitor to buy or sell part of a business?
Whilst there is no legal requirement to instruct a solicitor when buying or selling part of a business, doing so can help ensure the transaction is properly structured, documented and completed, whilst reducing unnecessary risk. If you are acting as a director of a limited company, you should also consider whether you are complying with your statutory duties if you do not seek appropriate legal advice.
Partial business sales and acquisitions often involve significant legal, commercial and financial considerations. An experienced solicitor will be able to help you navigate this complexity, protect your interests and ensure the transaction is structured in line with your objectives.
For most transactions, the cost of expert legal advice is relatively modest when compared to the potential consequences of issues emerging after completion, and the risk of lost time and costs should a transaction abort due to an avoidable sticking point.
How Scott Bailey can help
Buying or selling part of a business can be complex, particularly where shareholder relationships, shared assets, employees or ongoing involvement in the business are concerned.
At Scott Bailey, our specialist corporate and commercial solicitors have extensive experience advising owner-managed businesses, entrepreneurs and investors on all aspects of buying and selling businesses. We can assist with structuring the transaction, conducting due diligence, negotiating Share Purchase Agreements and Asset Purchase Agreements, preparing Shareholders’ Agreements and managing the transaction through to completion.
Our team provides practical, commercially minded legal advice designed to protect your interests and support your long-term objectives. Wherever appropriate, we offer fixed-fee or value-based pricing, ensuring clarity on costs from the outset.
If you’d like to learn more about how we can support you, get in touch today.
