Buying a business: the legal steps from offer to completion

Share purchase or asset purchase

The first decision is what you are buying. In a share purchase you buy the shares in the company that owns the business. The company carries on as before, with the same contracts, employees, assets, tax history and liabilities, including any that nobody yet knows about, and only its ownership changes. In an asset purchase you buy selected assets from the current owner, such as equipment, stock, goodwill, the business name, customer contracts and sometimes property, and you agree which liabilities, if any, you take on. The seller keeps everything else.

Buyers of smaller businesses often prefer an asset purchase because it leaves historic liabilities behind. Sellers who own a company generally prefer to sell shares, because the proceeds go straight to them and the company's liabilities go with it. The choice affects tax, stamp taxes, the transfer of contracts and employees, and how much due diligence you need, so settle it with your accountant before heads of terms are signed.

	Share purchase	Asset purchase
What you acquire	The company, with everything it owns and owes	The assets and liabilities listed in the agreement
Historic liabilities	Stay in the company, so you rely on warranties and indemnities	Generally stay with the seller unless you agree to take them on
Employees	The employer does not change, so TUPE does not apply	TUPE usually applies and the employees transfer to you
Customer and supplier contracts	Continue, unless they allow the other party to end them on a change of control	Have to be transferred, often with the other party's consent
Stamp taxes	Stamp duty of 0.5% on the price of the shares	Stamp Duty Land Tax, or Land Transaction Tax in Wales, on any land and buildings
VAT	Not normally charged on a sale of shares	Not charged if the going concern conditions are met

Heads of terms and exclusivity

Once the price and structure are agreed in principle, the parties normally sign heads of terms, a short document recording the main points: what is being bought, the price and how it will be paid, any conditions, the timetable and the seller's role after the sale. Heads of terms are normally not legally binding, apart from clauses stated to be binding, such as confidentiality, an exclusivity period during which the seller will not negotiate with anyone else, and sometimes an agreement about costs if the deal does not proceed.

Take advice before signing heads of terms, even though most of the document is not binding. Points that look minor at this stage, such as whether the price assumes the business comes with a normal level of working capital and no borrowing, are hard to change later without reopening the price. Before the seller shares detailed information, expect to be asked to sign a non-disclosure agreement.

There are two common ways of fixing the price. In a completion accounts deal, accounts are prepared as at the completion date and the price is adjusted up or down for the actual cash, debt and working capital in the business on that day. In a fixed-price deal, sometimes called a locked box, the price is based on an earlier balance sheet and the seller promises that no value has been taken out of the business since that date, other than as agreed. Part of the price may be deferred, either paid later in fixed instalments or depending on the business's future performance, which is known as an earn-out.

Due diligence: what to check

Due diligence is the buyer's investigation of the business before committing to buy it. Your accountant reviews the financial information and tax, and your solicitor reviews the legal position. The seller provides documents, normally through an online data room, and answers written questions. The aim is to find anything that affects the price, needs specific protection in the purchase agreement, or means the deal should not go ahead.

The legal review of a small or medium-sized business covers:

• ownership: the register of members and Companies House filings, or title to the assets being sold, and any charges over them;
• key contracts, and whether customers or suppliers can end them on a change of ownership or must consent to their transfer;
• employees: contracts, pay and benefits, pension arrangements, restrictive covenants and any disputes;
• property: leases, the landlord's consent to assignment, and repair obligations;
• intellectual property: registered trade marks, domain names, and written assignments of work created by contractors;
• data protection, licences and any regulatory permissions the business needs to trade;
• litigation, complaints, and insolvency searches against the company and the seller.

Some of these checks have consequences beyond the price. Where a lease can only be assigned with the landlord's consent, and the lease says consent cannot be unreasonably withheld, the landlord, once it receives a written application, must give consent unless it is reasonable not to, and must give written notice of its decision within a reasonable time, with reasons if it refuses (Landlord and Tenant Act 1988, section 1). Copyright in work created by a contractor belongs to the contractor unless it has been assigned in writing and signed by them (Copyright, Designs and Patents Act 1988, section 90(3)), which matters for businesses whose software, designs or content were produced by freelancers.

If the target company carries on activities in one of 17 sensitive areas of the economy defined under the National Security and Investment Act 2021, which include defence, energy, transport, artificial intelligence and data infrastructure, taking a holding of its shares or voting rights above 25% or 50%, or to 75% or more, may need government approval before completion. Completing a notifiable acquisition without approval makes it void and can expose the buyer to civil or criminal penalties. These mandatory notification rules apply to acquisitions of companies and other entities, not to purchases of assets.

The purchase agreement: warranties, indemnities and limits

The sale and purchase agreement is the binding contract. Alongside the price and completion arrangements, most of the negotiation concerns how risk is shared if the business turns out to be different from the picture you were given.

Warranties are statements of fact about the business given by the seller, for example that the accounts are accurate, there are no disputes, and the company has paid its taxes and complied with the law. If a warranty is untrue and that reduces the value of what you bought, you can claim damages, but you have to prove the loss. An indemnity is a promise to reimburse a specific liability pound for pound if it arises, such as a known tax enquiry or a claim by a former employee, without having to show a fall in value. In a share purchase there is normally also a tax covenant, under which the seller pays for tax liabilities that relate to the period before completion.

The seller responds with a disclosure letter setting out exceptions to the warranties. A matter that has been fairly disclosed generally cannot be the subject of a warranty claim, so read the disclosure letter as carefully as the agreement, and press for specific disclosures rather than a general statement that everything in the data room is treated as disclosed. Where disclosure reveals a real risk, the usual responses are a specific indemnity, a lower price, or part of the price held back in a retention account for an agreed period.

The seller will want to limit their exposure with a minimum size for each claim, a total that claims must exceed before any can be made, an overall cap, and time limits for notifying claims. Those limits are negotiable, and the right levels depend on the size of the deal and what due diligence has found. The agreement is also likely to say that you are relying only on what is written in it, and a term excluding liability for misrepresentation made before the contract is effective only if it is reasonable (Misrepresentation Act 1967, section 3).

Ask for restrictive covenants from the seller, preventing them from competing with the business, approaching its customers or recruiting its staff for an agreed period. They protect the goodwill you are paying for. In Cavendish Square Holding BV v Makdessi [2015] UKSC 67, the Supreme Court upheld clauses that cut a seller's price after he broke his non-compete covenants, recognising the buyer's legitimate interest in protecting the goodwill of the business it had bought.

Employees and TUPE

In a share purchase the employer is still the company, so the employees' contracts continue unchanged and the Transfer of Undertakings (Protection of Employment) Regulations 2006, known as TUPE, do not apply. Any changes you plan after completion have to be made in the ordinary way, with consultation and agreement where needed.

In an asset purchase of a business with employees, TUPE usually applies. Employees assigned to the business transfer to you automatically on their existing terms, keeping their continuity of employment, and liabilities connected with their employment generally transfer with them, including claims arising from the seller's past failures. A dismissal is automatically unfair if the sole or principal reason for it is the transfer, unless there is an economic, technical or organisational reason entailing changes in the workforce.

The seller must give you employee liability information at least 28 days before the transfer, including each employee's identity and age, their written particulars of employment, and any disciplinary or grievance action and legal claims in the previous two years (regulation 11). Both the seller and the buyer have duties to inform, and where changes are planned to consult, representatives of the affected employees before the transfer. For transfers completing on or after 1 July 2024, an employer with fewer than 50 employees, or a transfer of fewer than 10 employees, can inform and consult the employees directly if there are no existing representatives. A tribunal can award up to 13 weeks' pay for each affected employee for a failure to comply (regulation 16). The purchase agreement should allocate these risks, with indemnities from the seller for liabilities that arose before completion.

Stamp duty, VAT and funding

When you buy shares using a stock transfer form, you pay stamp duty of 0.5% of the price where it is over £1,000, rounded up to the nearest £5. A copy of the form must be sent to HMRC's Stamp Office, and the duty paid, within 30 days of the form being signed and dated. For example, on a price of £400,000 the stamp duty is £2,000.

In an asset purchase that includes land or buildings in England, Stamp Duty Land Tax is payable on the part of the price allocated to the property. For non-residential property the rates are 0% on the first £150,000, 2% on the next £100,000 and 5% on the amount above £250,000, and the return must be filed and the tax paid within 14 days of completion. Property in Wales is subject to Land Transaction Tax instead.

VAT needs particular care in an asset purchase. If the business is sold as a going concern and the conditions in HMRC's VAT Notice 700/9 are met, including that you intend to use the assets to carry on the same kind of business and, where the seller is VAT registered, that you are registered or required to be, the transfer is not treated as a supply for VAT and the seller must not charge VAT. The rules are mandatory, so if VAT is charged when it should not have been, the buyer cannot reclaim it as input tax. Land and buildings on which the seller has opted to tax need extra steps, including the buyer notifying HMRC of its own option to tax by the relevant date.

If the purchase is funded by a bank or other lender, the lender will want security over the business and may ask for a personal guarantee from you. Arrange funding in principle before the exclusivity period starts, because the lender's own requirements add documents and conditions to the timetable.

Completion and the first weeks of ownership

Signing and completion can happen on the same day, or there can be a gap while conditions are met, such as a landlord's consent, a lender's final approval or clearance under the National Security and Investment Act. At completion the seller delivers the signed stock transfer forms or asset transfer documents, board minutes, resignations of outgoing directors and anything else the agreement requires, and the buyer pays.

Anyone appointed as a director at completion must have verified their identity with Companies House. Identity verification became a legal requirement on 18 November 2025, and a new director's Companies House personal code has to be provided when their appointment is filed, so arrange verification before completion. Directors who were already in office provide their codes with the company's next confirmation statement.

After completion, update the company's registers and its Companies House records, including the register of people with significant control, and pay the stamp duty within 30 days. Change bank mandates and insurance, and contact key customers and suppliers. In an asset purchase, the employees need to be told who their new employer is and contracts need to be transferred. Put in the diary the dates for any completion accounts, deferred payments and the deadline for notifying warranty claims.

What drives the time and cost

The legal work on an acquisition depends on the size and complexity of the business, how organised the seller's records are, the number of contracts, employees and properties involved, whether a lender or regulatory approval is involved, and how far the terms are negotiated. A business with complete records and a seller who answers questions promptly can move much faster than one where due diligence uncovers problems that need renegotiating. We agree the scope and cost in writing before we start, and we can work alongside your accountant on the financial and tax review.

If you are considering a purchase, the useful first steps are to talk to your accountant about the structure and price, take advice before signing heads of terms, arrange funding in principle, and write down the issues that would stop you going ahead, so that due diligence looks at those first.

Frequently asked questions

Should I buy the shares or the assets of a business?

It depends on the business and the tax position. Buying assets lets you choose what you take on and leave most historic liabilities with the seller, but contracts and property may need consents to transfer and TUPE usually applies to the employees. Buying shares keeps everything in place, including contracts and licences, but the company's history comes with it, so you rely on due diligence, warranties and indemnities. Sellers often prefer a share sale for tax reasons, so the structure can also affect the price.

What does due diligence involve when buying a business?

Due diligence is your investigation of the business before you commit to buying it. Your accountant reviews the accounts, trading performance and tax, and your solicitor reviews ownership, contracts, employees, property, intellectual property, disputes and compliance. The seller provides documents, often through an online data room, and answers written questions. The findings feed into the price, the warranties and indemnities in the purchase agreement, and sometimes the decision whether to proceed at all.

What is the difference between a warranty and an indemnity?

A warranty is a statement of fact about the business, such as that the accounts are accurate. If it is untrue, you can claim damages, but you must prove the breach reduced the value of what you bought. An indemnity is a promise to reimburse a specific liability pound for pound if it arises, whether or not the value of the business has fallen. Buyers use indemnities for known risks found in due diligence, such as a pending tax enquiry or an employment claim.

Do the employees transfer when I buy a business?

In an asset purchase they usually do. Under TUPE, employees assigned to the business transfer to the buyer automatically on their existing terms, keeping their continuity of employment, and a dismissal because of the transfer is automatically unfair unless there is an economic, technical or organisational reason entailing changes in the workforce. In a share purchase TUPE does not apply, because the company remains the employer, and the employees and their contracts stay with the company you have bought.

Do I pay stamp duty when I buy a company?

Yes, if you buy the shares. Stamp duty on a share purchase made with a stock transfer form is 0.5% of the price where it is over £1,000, rounded up to the nearest £5, and must be paid within 30 days of the form being signed and dated. In an asset purchase there is no stamp duty on shares, but Stamp Duty Land Tax in England, or Land Transaction Tax in Wales, is due on any land and buildings included in the sale.

Are heads of terms legally binding?

Heads of terms are usually not legally binding, except for clauses that say they are. The binding clauses are normally confidentiality, exclusivity, which stops the seller negotiating with anyone else for an agreed period, and sometimes costs. Even though the commercial terms can still change, heads of terms set expectations that are hard to move later, so take advice on the price mechanism, conditions and timetable before you sign them.

What is a disclosure letter?

A disclosure letter is the seller's formal list of exceptions to the warranties in the purchase agreement. If a matter is fairly disclosed, the buyer generally cannot bring a warranty claim about it later, so sellers tend to disclose widely and buyers need to read the letter closely. Where disclosure reveals a real risk, buyers can ask for a specific indemnity, a price reduction, or part of the price to be held back until the risk has passed.

Sources & further reading

• GOV.UK — Transfer a business as a going concern (VAT Notice 700/9)
• GOV.UK — Tax when you buy shares
• GOV.UK — Business transfers, takeovers and TUPE
• legislation.gov.uk — Transfer of Undertakings (Protection of Employment) Regulations 2006
• GOV.UK — Stamp Duty Land Tax: rates for non-residential and mixed land and property
• GOV.UK — Check if you need to tell the government about an acquisition that could harm the UK's national security
• GOV.UK — Verify your identity for Companies House

This article is general information, not legal advice. The law changes and depends on your circumstances — always take advice on your specific situation before acting. Last reviewed 17 September 2026. AD Solicitors is a trading name of AD Solicitors Limited, a recognised body regulated by the SRA (no. 8011228).