Selling a Business - What Can Go Wrong?

What can go wrong with the business sale process?

Selling a business involves a number of potential pitfalls that can expose you to liability after completion. Without careful planning to anticipate legal and commercial obstacles, a transaction can encounter significant delays or reach an impasse, putting completion at risk. The buyer will naturally seek to protect their own interests, so it is important to ensure that your position is protected too.

Gannons provides legal support to sellers throughout the business sale process, helping you achieve your commercial objectives while reducing unnecessary exposure to post-completion claims.

Plan ahead on warranties, indemnities and disclosure

The sale agreement will usually contain warranties (contractual statements about certain facts) and may include indemnities (contractual promises to compensate for specified losses or events). The process will also involve disclosure by the seller and due diligence by the buyer.

Understanding how to approach these issues is essential. Warranties, indemnities and disclosure are common sticking points and, if not handled carefully, can delay or even jeopardise a business sale.

Negotiating these provisions involves important commercial decisions, including whether to give a warranty, disclose potentially unfavourable information or agree a specific indemnity. Where warranties and indemnities are required, their scope and limitations should be considered carefully. Although agreeing broad protections for the buyer may seem like a way to move the transaction forward, post-completion claims can have significant financial consequences.

Restrictive covenants

When selling a business, the buyer may seek to prevent you from competing with the business after completion, whether by setting up a similar business or joining an existing competitor. Restrictions may also cover soliciting or poaching the business’s clients, suppliers or employees.

These restrictions can last from a few months to two years or longer, depending on the agreement and circumstances, and may significantly affect your future commercial activities. We negotiate restrictions that are no wider than necessary, helping you protect your ability to earn a living and pursue future business opportunities while addressing the buyer’s legitimate concerns.

Limiting your liability

It is impossible to anticipate every eventuality when selling a business. For example, an unexpected tax liability may arise, or a former employee or customer may bring a claim against the business after completion.

If an issue emerges after the sale, the buyer may seek to recover losses from you under the sale agreement, including for alleged breaches of warranties or other contractual obligations. The extent of your exposure will depend on the agreement and the circumstances of the claim.

To reduce the risk of unexpected financial exposure, it is important to negotiate appropriate limitations on liability where possible. These may include restrictions on the types of claim that can be brought, time limits for bringing claims, minimum thresholds for individual claims and an overall financial cap on liability.

Careful negotiation of the sale agreement can help manage post-completion risk and provide greater certainty about your potential liabilities.