Buying and Selling a Business


In contrast to an agreement for the sale of shares, which will provide for the sale and purchase of the entire issued share capital of the target company, agreements for the sale and purchase of assets tend to be more diverse in nature.

10.8.1Sale of a Business as a Going Concern

Where the entire business of a company is to be acquired as a going concern the Asset Purchase Agreement will identify the various categories of assets which together comprise the business to be sold, including the freehold or leasehold property from which the business is carried on, the goodwill of the business, including the business name used by the seller in the course of the business, fixed and movable assets such as plant, machinery and stock, work in progress, the intellectual property owned or used by the seller in the business and the benefit of all material contracts with suppliers, customers and other third parties. In view of the fact that such an acquisition will, in the majority of cases, constitute an "undertaking, business or part of an undertaking or business" within the meaning of Council Directive 2001/23/EC of 12 March 2001 and the European Communities (Protection of Employees on Transfer of an Undertaking) Regulations 2003 14 the transfer will necessitate the inclusion of various warranties and indemnities concerning the affected employees, for which see paragraph 10.13 and Chapter 12.

10.8.2Sale of Assets on a "Break-up" Basis

It may be that the seller's business is no longer carried on as a going concern and the assets thereof are being sold on a "break-up" basis. In such a case goodwill may be non-existent and there may be different parts of the business and assets being purchased by different persons. It is also unlikely that the benefit of third party contracts with suppliers and customers will form part of the sale. The price to be paid for the assets in these circumstances may be much lower than if the sale were of an entire business sold on a going concern basis.

10.8.3Sale of Part of a Business

The sale may constitute part of the business of the seller, as may occur upon the sale of a division of a business. In such a case it will be particularly important to identify those assets which properly belong to the division being sold. Inevitably there may be assets, which are shared between the divisions, and arrangements may need to be made between the seller, the purchaser and the affected employees concerning the separation of the shared assets and the vesting of same in the purchaser. These issues frequently arise in relation to a head office engaged in the provision of services to the independent divisions of a business. In this regard it would not be uncommon for the seller and purchaser to enter into transitional arrangements for the sharing of assets, premises and facilities for a limited period following completion until the purchaser can enter into appropriate long-term arrangements with third parties.

10.8.4Identification of the Assets in Sale

An assets sale will usually give rise to a significant degree of work involving the identification of the various assets in sale. The amount of work required will be dependent on the nature of the business and whether the seller already maintains reliable records of its assets. For example, the seller may maintain an Asset Register of its plant and machinery. However it may not be up to date or sufficiently comprehensive to include each and every item of plant and machinery to be sold. The existence of an Asset Register does however represent a useful starting point, which will need to be up dated for the purposes of being scheduled to the Agreement. Similarly, if the assets are to include the benefit of contracts, leases and hire purchase agreements with customers and suppliers these will have to be listed and, preferably, copies of the contracts obtained and identified. From a drafting and legal perspective, an important issue which needs to be addressed by the draftsman of the Asset Purchase Agreement is whether the assets listed in each class are to be conclusive in identifying the assets to be transferred at completion 15 .

Continuing with the example of the contracts, leases and hire purchase agreements with customers and suppliers, the purchaser will wish to obtain the benefit of all such contracts however formal or informal. Accordingly, the purchaser may include within the Asset Purchase Agreement an appropriate definition of the contracts to be acquired as being the contracts listed in the schedule together with such other contracts relating to the business to which the seller is a party as at the date of completion. The advantage of such an approach is that it recognises that between the execution of the Asset Purchase Agreement and completion additional contracts may be entered into by the seller in connection with the business, which will form part of the assets to be transferred on completion. In order to ensure that the seller does not enter into commercially unsound contracts during the intervening period, the Asset Purchase Agreement will usually provide the purchaser with a degree of control over the terms of all contracts entered into between the seller and third parties during the period, for which see paragraph 10.9.5 (c).

10.8.5Seller sells the Assets as Beneficial Owner

The seller will agree to sell the Assets (which will usually be a defined term) at completion free from any Encumbrances, (which will usually also be a defined term as including any charges, liens, options, adverse claims and third party entitlements). The capacity in which the seller is selling the assets will also be expressly stated, usually as "beneficial owner". The practice of expressly stating the legal capacity in which a seller is to sell its assets is derived from Section 7 of the Conveyancing Act, 1881. This section provides a purchaser of land from a person who sells as beneficial owner with four implied covenants, namely that the seller has full right to transfer the property, a covenant for quiet enjoyment, that the property is free from encumbrances and that the seller will execute further assurances to vest the property in the purchaser if required. Such covenants do not apply to property other than land. Nonetheless, the expression "beneficial owner" correctly describes the seller's ownership of assets in the majority of cases and, in practice, it ought only be qualified for good reason.

10.8.6Excluded Assets

Irrespective of whether the assets comprise all or part of an undertaking or business, commercial and stamp duty considerations will usually dictate that certain categories of asset be excluded from the sale, including the debtors, book debts and other sums owing to the seller in relation to the business together with cash in hand and at bank. The stamp duty considerations are considered in paragraph 10.10.1.


As a general rule, the acquisition of the assets of a business will not of itself involve the assumption by the purchaser of the seller's liabilities in relation thereto 16 . The fact that the seller will continue to be responsible for its liabilities in relation to the conduct of the business up to the completion or effective date of the sale constitutes a significant factor in influencing a purchaser's decision to structure a purchase as an assets acquisition. Nonetheless the Asset Purchase Agreement will often include, for the avoidance of doubt, an express provision requiring the seller to discharge all liabilities of the business up to the completion or effective date of the sale. Such an obligation might also be supplemented by an indemnity whereby the seller agrees to indemnify the purchaser in relation to any liability which the purchaser incurs in respect of the pre-completion period. The purchaser may also be required to provide a corresponding indemnity in favour of the seller in relation to new liabilities of the business incurred following completion.

10.8.8Contracts of Insurance

The benefit of a contract of insurance is not capable of assignment without the consent of the insurer. It is therefore somewhat unusual for a purchaser to acquire the benefit of the seller's policies of insurance and the purchaser will usually take out new policies of insurance in relation to the assets acquired and the risk therein as and from the date when the risk passes to the purchaser, which is usually the completion or effective date of the sale.