How to buy a business- the legal process

Wednesday, October 9th, 2019

Company and Commercial Department

In this article we set out, in basic terms, the steps required to complete the purchase of a business.

1. Heads of Terms
The first step is to agree the commercial terms of the deal, the most important being the purchase price and agreeing how this will be paid. Although non-binding (usually), heads of terms are important as they create a moral commitment between the parties which can be difficult to deviate from down the line. For this reason, we would always recommend buyers take professional advice before agreeing heads of terms with the seller.

2. Due Diligence
Once heads of terms are agreed, the buyer’s solicitor will carry out a legal due diligence review of the target business. The buyer’s solicitor will make an information request to the seller’s solicitor, who, together with their client, will provide the requested information for the buyer’s solicitor to review.
The buyer’s solicitor will require responses from the seller on a wide range of issues in relation to the target business, including corporate structure, finance arrangements, intellectual property rights, litigation history, employee information and regulatory compliance. The buyer’s information request will often be tailored to focus on specific areas based on the type of business that is being acquired.

3. Transaction Documents
Normally at the same time as issuing their information request, the buyer’s solicitor will circulate to all parties a documents list, which lists the documents required to complete the purchase. The documents list will normally describe each document, its proposed signatories, which solicitor will prepare it and its current status (to be updated as the transaction progresses).

The average business purchase will require around 30-40 signed documents to complete, most of which will be prepared by the buyer’s solicitor and signed by the seller. Often the longest and most heavily negotiated document is the sale contract, which sets out the terms of the purchase and will include a suite of warranties from the seller to the buyer as to the state of the target business. Aside from the sale contract, other key documents to be agreed between the parties include the disclosure letter, stock transfer forms, corporate authorisations, powers of attorney, waivers of claims and settlement agreements.

4. Completion
When the buyer and their advisers are satisfied with the due diligence exercise and the transaction documents are agreed between the parties, the parties can exchange signed counterparts of the transaction documents and either move to completion straight away or set a completion date. The latter method is normally adopted if completion is conditional on something (such as the approval of a regulatory body).

5. Post-completion
Following completion, in the case of a share purchase, the buyer should instruct their advisers to update the target business’ Companies House file and settle the stamp duty payable on the share transfer (0.5% of the purchase price).
If the buyer has borrowed money to finance the purchase, they should also instruct their advisers to make any filings at Companies House and HM Land Registry that their lender may require.

If you are looking to purchase a business and wish to discuss matters in greater detail, please contact one of our commercial solicitors on 0207 228 0017 or
This article does not constitute legal or other professional advice or a professional opinion of any kind nor does it give rise to a solicitor/client relationship. If you require specific legal advice on the matters contemplated by this article, please contact a member of our Commercial Team.