Selling a Business - What Can Go Wrong?

What can go wrong with the business sale process?

When selling a business there are a number of pitfalls that can lead to liability further down the line. Without good planning which anticipates roadblocks, commercial and legal, once you have a buyer, the process of selling can all too often reach impasse and/or significant delays (which risk the transaction not reaching completion). The Buyer will be looking to protect their interests.

Gannons specialise in protecting sellers through the business sale process, balancing your commercial objectives to get the deal through with ensuring you aren't left unnecessarily exposed to claims by the buyers down the line.

Plan ahead on warranties, indemnities and disclosure

In the sale contract there will be warranties (promises  about certain facts) and indemnities (promises to pay if specified events happen or don't happen). The process will also include disclosures by the seller and the buyers due diligence.

Understanding how to deal with these aspects is key. They are common sticking points and sometimes cause business sales to fail if not skilfully dealt with.

Negotiating on warranties, indemnities and disclosure is part of the role of commercial lawyers. There will likely be decisions to be made about the best approach - whether by way of warranty or disclosing possibly unfavourable information. If warranties and indemnities have to be given, the terms should be very carefully considered. whilst it may be tempting to agree these to push a deal through, claims later are not uncommon.

Restrictive covenants

When selling a business, the Buyer is likely to want to prevent you personally from competing with that business after it is sold (whether by setting up a similar business or joining an existing competitor) and soliciting (or poaching) clients, suppliers or employees from the business. These can last anywhere from 3 months to 24 months and will practically have a big effect on what you can do next. We negotiate the shortest periods for non-compete clauses, however, you need to ensure that you can earn a living and are not prohibited from building any future businesses.

Limiting your liability

In selling a business you cannot account for every eventuality, there can be unforeseen circumstances. For example, you may have an outstanding tax bill that you weren’t aware of or an aggrieved ex-employee or customer seeking damages from the Company.

Post purchase if any gremlins do arise the Buyer will almost certainly consider claiming any losses (including legal fees) against you for breach of contract and/or warranties. To protect yourself from the unforeseen, you can push to limit your liability where possible. We can negotiate limits on the types of claim, time periods for bringing a claim and the minimum and maximum financial limits on claims brought.