We review documents and can also handle aspects such as tax and commercial negotiations on your behalf if required.
We are always happy to discuss your transaction. We will let you have an estimate of likely costs and guide you on the process.
Why pick us?
We are a specialist firm large enough to field a strong team without unnecessary wastage.
- We have dealt with many different types of technology based transactions which brings experience passed onto you.
- Experienced in working with businesses of all sizes. We find clients of the larger law firms are attracted to us because they know they will receive better value and service.
- We can deal with all issues in the round including tax concerns.
Issues we commonly see arising
Drawing on the issues we see arising in transactions we have explained below some pointers to be thinking about before you get started.
- Spotting issues for a buyer;
- How much due diligence is needed;
- Avoiding issues for a seller;
- Special considerations for trading platforms.
Spotting issues for a buyer of technology
The starting point for review of the issues comes at the heads of terms stage. Well thought out and well negotiated heads of terms in almost every case we deal with leads to a smoother process with reduced professional fees.
There are basic terms which are included in most sale and purchase agreements involving technology and/or intellectual property. What we do is take the basics and turn them into a bespoke deal to reduce risk and enhance your position.
What is being sold?
A buyer will want to ensure that the seller has full title to the technology and any intellectual property rights being acquired. Full title implies the:
- The seller has the right to dispose of the technology intellectual property rights.
- The seller will, at his own cost, do all that it reasonably can to give the buyer title to the technology or IP acquired.
- The technology IP rights are assigned free from charges and third-party rights.
- The technology IP operates as expected. Bugs and enhancements need to be established and costed.
- The trade secrets are adequately secured.
Owners of the technology
If the transaction is a share acquisition the buyer will want to know the identity of the shareholders. A buyer will be concerned to know that all of the sellers will agree to the sale. A review of the articles and shareholders’ agreement for provisions such as drag rights which force shareholders to enter into the transaction and therefore provide comfort to the buyer will be undertaken. Ownership of the technology in terms of its creation or previous acquisition should be considered.
Use of escrow accounts
With software, you need to consider the timing of the sale. Often in a software sale, an escrow company is designated in order to safeguard the buyer’s interests. The idea is that the buyer has a chance to test the software before buying. The seller is then able to disclose against the testing window offered via the escrow company and limit liability for matters such as bugs and software defects. The process of testing can extend the period between exchange and completion of contracts.
Escrow accounts can be used to extend security for the sale consideration pending satisfactory testing.
Due diligence in technology transactions
Any transaction involving intellectual property requires due diligence. The due diligence exercise breaks down into:
- Legal due diligence; and
- Financial due diligence; leading to
- Price negotiations, warranties and indemnities.
Technology transaction legal due diligence
Most of the value we provide centres around legal due diligence. We report on:
- The technology IP rights as they exist;
- Liabilities the buyer could be taking on;
- The shape of major licence agreements;
- Assignment of rights; and
- What consents are needed to sell the business or assets.
Financial due diligence
The bulk of the financial due diligence is usually undertaken by accountants. However, we do keep a watching eye and guide on areas where work may be needed. We will deal with issues arising in the indemnities and warranties included in the sale agreement.
Issues for the sellers of technology
In a surprisingly large number of cases we find ourselves dealing with ex-creators of technology or IP who allege they own it. Often issues only come to light when a sale is proposed. The problems arise where there was no agreement between the creator and the company assigning work created in return for payment – the payment is usually salary or contractor fees.
Inspection of key technology agreements and related documents
Attuned to risk the buyer will want to inspect the employment documentation, framework agreements, collaboration agreements and business contracts to make sure that the creators of the technology or IP have assigned intellectual property they create to the business.
If there is time, sellers should sort out any problems before disclosure but we find that is often not the case.
Technology transaction disclosure letter
The buyer will want indemnities to protect against risk. The seller will need to give sufficient details to enable the buyer to understand the issues and assess the impact. The seller will then seek to limit liability through the use of disclosure. The disclosure letter is an important document we draft for sellers. Without a disclosure letter the seller is potentially exposed to claims which will be offset against the purchase price.
Timing for production of the disclosure letter
The seller will usually have to consult with individuals within the business who have been involved with the creation of intellectual property, maintenance and/or revenue streams before giving disclosure so that disclosure covers all it should. The time this will take needs to be factored into the deal timetable.
Special considerations for trading platforms
Tax payable by the sellers on a technology sale
Relevant issues we find we deal with for shareholders under a share sale include:
- Business Assets Disposal Relief (Entrepreneurs relief)– will the sellers of the IP business qualify for the 10% rate of capital gains tax or will they face a 20% capital gains tax bill. Often there is planning which if done with sufficient time before the sale can qualify the shareholder for the 10% rate of capital tax.
- EIS investment scheme– will the sale impact on qualification for investors who became shareholders under the EIS scheme. Similar considerations apply for investors who invested under the SEIS investment scheme although the rules are not identical.
- EMI options – will they qualify for the beneficial tax treatment.
Earn outs and deferred consideration
Under some transactions the consideration is deferred pending earn out targets or paid in instalments. Deferred consideration can give rise to issues for shareholders hoping to claim Business Assets Disposal Relief (entrepreneurs’ relief). We do advise on these aspects.
Tax with a sale of assets
If the IP is sold under an asset sale the proceeds are paid to the company and a charge to corporation tax arises. Usually the only way for shareholders under an asset sale to realise value is to receive a dividend. Generally speaking a dividend is not as tax efficient as receiving a capital payment under a share sale. Liquidation is an alternative depending upon the facts can give rise to increased costs.