Notes created using BPP materials and statute for the purpose of assisting existing BPP LPC students in BPP LPC exams only. They are
intended to be used as a supplemental tool to aid revision in conjunction with BPP materials, not as a replacement for them.
EARLY STAGES
SHARE SALE VS ASSET SALE
Share Acquiring shares in a co – only asset that changes hands
sale Co itself does not change, just ownership changes – co trades as before
B acquires T with all assets + liabilities unless otherwise agreed – extensive due diligence needed
Mini share sale = asset sale where the assets sold include the shares of a sub
Consideration = paid directly to SH
Seller
+ Clean break – S can walk away with no liabilities if negotiated
+ Tax exemptions for corporate S
+ Consideration transferred directly to SH
+ Simple transaction – only transferring shares
- B may require warranties or indemnities
- S might only want to sell a specific part of the business
Buyer
+ Easy to gain control as all assets acquired at once – 3PT consents usually unnecessary
+ Simple/quick transaction – only transferring shares
+ Continuity – business continues as before
- Cost – time/cost spent on due diligence as B is acquiring T + liabilities
- Risk – B acquires all liabilities and obligations
Asset/ T purchased as a going concern – B carries on business in succession
business Each asset transferred separately – TR1 for property, contract for license of IP etc
sale Ownership of co does not change, but business being sold does change
B can cherry pick which assets it wants + leave liabilities with S
Selling co continues to exist – if whole business is sold, selling co becomes cash shell
Consideration = paid to T itself (ie selling co) – transferred to SH by way of dividend/winding up
Seller
+ Can sell only loss making/non-core assets
- No clean break – S might retain liabilities
- Consideration transferred to T – money then distributed to SH via dividends/winding up
Buyer
+ Cherry picking – can pick assets with liabilities left behind
- Control – may not gain full control of co/access key employees/know-how to fully utilise co
- Complexity – negotiations increase with number of assets purchases
- Some liabilities acquired – ie TUPE liabilities and any negotiated liabilities
- Tax – SDLT payable on acquisition on properties/land
,Which provisions in asset sale agreement are absent in share sale agreement?
• Definition of “the Business” being sold, and what assets and liabilities that includes
• Agreement to sell assets + list of assets being acquired by B – diff assets require diff methods of transfer
• Consideration
• List of excluded assets
• List of employees transferring under TUPE
• Schedule of continuing contracts
• Clause dealing with apportionments eg rent/utility bills
• Provisions regarding debtors and creditors
• Clauses dealing with IP
• Which company books/records will be handed over at completion
• VAT provisions – asset sale exempt from VAT if condition are met
• No separate Tax Deed required for asset sales
HIVE DOWN
= S transfer business into another co that it owns (asset sale) then sells the shares in that co to S (share sale)
May be utilised:
• For tax reasons – ultimate sale = share sale
• If S runs concurrent businesses in the same co which B does not want to buy all of
• Unwanted liability – initial business transfer removes liability whilst still allowing ultimate share sale
Hive up = reverse – assets of sub transferred up to parent co
PRIVATE TREATY VS AUCTION SALE
Private 1 S negotiates with 1 prospective B
treaty
sale • Heads of Agreement
o Set out key commercial terms of deal
o Moral force only but some terms are legally binding eg confidentiality, lock-out
o Gives each party comfort re serious intent of the other
o Sometimes signed before solicitors are instructed
• Confidentiality Agreement
o S’s solicitor drafts
o Purpose: Ensures sensitive info is kept confidential and used only for evaluating T
o Parties: S and B – BUT T will have no contractual rel to enforce it so
- Make T a party to the agreement so it can enforce the obligations; or
- Add clause saying T benefits from B’s undertakings – enforceable under CRoTPA 99
o S usually requires potential B to procure persons whom info is passed to are bound too
o What is confidential: Definitions + undertakings (limit no. of copies, destroy on request)
o How long should info be kept confidential: depends on nature of info – Indefinite may
be appropriate but court unlikely to enforce so must be reasonable eg 2-3 years
2
, • Exclusivity/Lock-out Agreement
o Purpose: Protection for B losing out to rival bidder
o Agreement that for certain period of time seller won’t speak to anybody else
o Walford v Miles: agreement must be suff clear – for a fixed period and for
consideration/under seal → lock-in agreements are unenforceable – lacks certainty
o Can be a separate agreement or included in the HoT
• Acquisition Agreement
o First draft prepared by B after/during DD process
o Main provisions:
- Consideration – how much, form, method, time of payment
- B will want:
▪ Warranties/indemnities
▪ Conditions precedent – conditions to comply with before completion
▪ Retention account clause – purchase money kept aside for warranty claims
▪ Reduction in purchase price – if there is a quantifiable liability
- S will want:
▪ Seller protection clauses – time limit, de maximus, de minimis
▪ Provisions confirming a clean break from liability
• Disclosure Letter
o S sets out matters which make the statements of fact given via warranties untrue
• Other completion docs
o Service agreements
o Tax deed – containing indemnity from S re to take issues (only for share sale)
o IP licences
o Novation/assignment agreements
o Completion board minutes
o Stat forms – to CH re change of T’s reg office, auditors, Ds
o Transitional services agreement – ensure temp continuance of services provided to T
Auction 1 S seeking bids for T from several prospective Bs in a competitive tender process
sale
• Confidentiality Agreement – as for private treaty but also:
o All potential bidders required to sign
o Include: ‘For benefit of futures owners of T from time to time’ – gives S the right to assign
so that successful bidder can enforce agreement against unsuccessful bidders
• Info Memorandum – no equivalent in Private Treaty sale
o Contains suff info on T to give bidders a basis for indicative bids
o States that it is subject to the confidentiality agreement
o If bidder decides not put in indicative bid – must return/destroy confidential info
• Process Letters
3
, o Sent to prospective bidders, setting out auction process + Info Memo
o Contains a clause stating that any confidential info must be returned if unsuccessful
o Asks bidders to provide details re finance in order to rule out non-serious bidders early
o = invitation to treat (Carbolic Smoke Ball) – S must consider all conforming tenders
(Blackpool & Flyde Aero Club) BUT no obligation to accept highest (or any) bidder
• Indicative Bids
o Bidders set out basic terms upon which it is prepared to buy T (HoT equivalent) → rules
out non-serious bidders at early stage
o If any bidder decides not to make a bid – return/destroy confidential info
o Avoid any exclusivity agreement
• Acquisition Agreement
o First draft prepared by S’s solicitors then bidders amend
AUCTION SALE ADVANTAGES AND DISADVANTAGES
Advantages • Reach a larger pool of potential buyers
for S • Price – competitive process maximises price – bid against each other
• Drafting – enables S to secure better sale terms (sellers lawyer draft sale documents)
• Data room – S controls DD including docs it will share with bidders
• SH approval – S likely to be in better position to show it has sold T for highest price
• Control – S can control transaction timetable – reduce time
Disadvantages • Confidentiality – risk of confidential info leaking to competitor
for S • Not all businesses are suitable – if market sector is limited then may be few bidders
• Costs – Sellers transaction costs usually higher than private treaty sale
• Time – significant management time commitment by seller
• Unscrupulous bidders – bidders may not be serious – finding info on competitor
• Decreased morale – risk of sale being discovered by staff
• Damage – if does not result in sale, the failure will be public
• Give rise to number of additional legal concerns
Advantages to • If there is little interest, S may be prepared to sell cheap to avoid costs
B
Disadvantages • Price – potentially higher
to B • Confidentiality – risk of confidential info being leaked which will damage T
• Wasted costs – lower chance of success, therefore can lead to wasted costs
• Less contractual provisions ie warranties/indemnities – more likely to be on S friendly
terms because S’s lawyers draft first AA + competitive bargaining process
• Less control of timetable/access to data room
• Less of an opportunity to spend time with Target management
• Risk of damage to Target
4
intended to be used as a supplemental tool to aid revision in conjunction with BPP materials, not as a replacement for them.
EARLY STAGES
SHARE SALE VS ASSET SALE
Share Acquiring shares in a co – only asset that changes hands
sale Co itself does not change, just ownership changes – co trades as before
B acquires T with all assets + liabilities unless otherwise agreed – extensive due diligence needed
Mini share sale = asset sale where the assets sold include the shares of a sub
Consideration = paid directly to SH
Seller
+ Clean break – S can walk away with no liabilities if negotiated
+ Tax exemptions for corporate S
+ Consideration transferred directly to SH
+ Simple transaction – only transferring shares
- B may require warranties or indemnities
- S might only want to sell a specific part of the business
Buyer
+ Easy to gain control as all assets acquired at once – 3PT consents usually unnecessary
+ Simple/quick transaction – only transferring shares
+ Continuity – business continues as before
- Cost – time/cost spent on due diligence as B is acquiring T + liabilities
- Risk – B acquires all liabilities and obligations
Asset/ T purchased as a going concern – B carries on business in succession
business Each asset transferred separately – TR1 for property, contract for license of IP etc
sale Ownership of co does not change, but business being sold does change
B can cherry pick which assets it wants + leave liabilities with S
Selling co continues to exist – if whole business is sold, selling co becomes cash shell
Consideration = paid to T itself (ie selling co) – transferred to SH by way of dividend/winding up
Seller
+ Can sell only loss making/non-core assets
- No clean break – S might retain liabilities
- Consideration transferred to T – money then distributed to SH via dividends/winding up
Buyer
+ Cherry picking – can pick assets with liabilities left behind
- Control – may not gain full control of co/access key employees/know-how to fully utilise co
- Complexity – negotiations increase with number of assets purchases
- Some liabilities acquired – ie TUPE liabilities and any negotiated liabilities
- Tax – SDLT payable on acquisition on properties/land
,Which provisions in asset sale agreement are absent in share sale agreement?
• Definition of “the Business” being sold, and what assets and liabilities that includes
• Agreement to sell assets + list of assets being acquired by B – diff assets require diff methods of transfer
• Consideration
• List of excluded assets
• List of employees transferring under TUPE
• Schedule of continuing contracts
• Clause dealing with apportionments eg rent/utility bills
• Provisions regarding debtors and creditors
• Clauses dealing with IP
• Which company books/records will be handed over at completion
• VAT provisions – asset sale exempt from VAT if condition are met
• No separate Tax Deed required for asset sales
HIVE DOWN
= S transfer business into another co that it owns (asset sale) then sells the shares in that co to S (share sale)
May be utilised:
• For tax reasons – ultimate sale = share sale
• If S runs concurrent businesses in the same co which B does not want to buy all of
• Unwanted liability – initial business transfer removes liability whilst still allowing ultimate share sale
Hive up = reverse – assets of sub transferred up to parent co
PRIVATE TREATY VS AUCTION SALE
Private 1 S negotiates with 1 prospective B
treaty
sale • Heads of Agreement
o Set out key commercial terms of deal
o Moral force only but some terms are legally binding eg confidentiality, lock-out
o Gives each party comfort re serious intent of the other
o Sometimes signed before solicitors are instructed
• Confidentiality Agreement
o S’s solicitor drafts
o Purpose: Ensures sensitive info is kept confidential and used only for evaluating T
o Parties: S and B – BUT T will have no contractual rel to enforce it so
- Make T a party to the agreement so it can enforce the obligations; or
- Add clause saying T benefits from B’s undertakings – enforceable under CRoTPA 99
o S usually requires potential B to procure persons whom info is passed to are bound too
o What is confidential: Definitions + undertakings (limit no. of copies, destroy on request)
o How long should info be kept confidential: depends on nature of info – Indefinite may
be appropriate but court unlikely to enforce so must be reasonable eg 2-3 years
2
, • Exclusivity/Lock-out Agreement
o Purpose: Protection for B losing out to rival bidder
o Agreement that for certain period of time seller won’t speak to anybody else
o Walford v Miles: agreement must be suff clear – for a fixed period and for
consideration/under seal → lock-in agreements are unenforceable – lacks certainty
o Can be a separate agreement or included in the HoT
• Acquisition Agreement
o First draft prepared by B after/during DD process
o Main provisions:
- Consideration – how much, form, method, time of payment
- B will want:
▪ Warranties/indemnities
▪ Conditions precedent – conditions to comply with before completion
▪ Retention account clause – purchase money kept aside for warranty claims
▪ Reduction in purchase price – if there is a quantifiable liability
- S will want:
▪ Seller protection clauses – time limit, de maximus, de minimis
▪ Provisions confirming a clean break from liability
• Disclosure Letter
o S sets out matters which make the statements of fact given via warranties untrue
• Other completion docs
o Service agreements
o Tax deed – containing indemnity from S re to take issues (only for share sale)
o IP licences
o Novation/assignment agreements
o Completion board minutes
o Stat forms – to CH re change of T’s reg office, auditors, Ds
o Transitional services agreement – ensure temp continuance of services provided to T
Auction 1 S seeking bids for T from several prospective Bs in a competitive tender process
sale
• Confidentiality Agreement – as for private treaty but also:
o All potential bidders required to sign
o Include: ‘For benefit of futures owners of T from time to time’ – gives S the right to assign
so that successful bidder can enforce agreement against unsuccessful bidders
• Info Memorandum – no equivalent in Private Treaty sale
o Contains suff info on T to give bidders a basis for indicative bids
o States that it is subject to the confidentiality agreement
o If bidder decides not put in indicative bid – must return/destroy confidential info
• Process Letters
3
, o Sent to prospective bidders, setting out auction process + Info Memo
o Contains a clause stating that any confidential info must be returned if unsuccessful
o Asks bidders to provide details re finance in order to rule out non-serious bidders early
o = invitation to treat (Carbolic Smoke Ball) – S must consider all conforming tenders
(Blackpool & Flyde Aero Club) BUT no obligation to accept highest (or any) bidder
• Indicative Bids
o Bidders set out basic terms upon which it is prepared to buy T (HoT equivalent) → rules
out non-serious bidders at early stage
o If any bidder decides not to make a bid – return/destroy confidential info
o Avoid any exclusivity agreement
• Acquisition Agreement
o First draft prepared by S’s solicitors then bidders amend
AUCTION SALE ADVANTAGES AND DISADVANTAGES
Advantages • Reach a larger pool of potential buyers
for S • Price – competitive process maximises price – bid against each other
• Drafting – enables S to secure better sale terms (sellers lawyer draft sale documents)
• Data room – S controls DD including docs it will share with bidders
• SH approval – S likely to be in better position to show it has sold T for highest price
• Control – S can control transaction timetable – reduce time
Disadvantages • Confidentiality – risk of confidential info leaking to competitor
for S • Not all businesses are suitable – if market sector is limited then may be few bidders
• Costs – Sellers transaction costs usually higher than private treaty sale
• Time – significant management time commitment by seller
• Unscrupulous bidders – bidders may not be serious – finding info on competitor
• Decreased morale – risk of sale being discovered by staff
• Damage – if does not result in sale, the failure will be public
• Give rise to number of additional legal concerns
Advantages to • If there is little interest, S may be prepared to sell cheap to avoid costs
B
Disadvantages • Price – potentially higher
to B • Confidentiality – risk of confidential info being leaked which will damage T
• Wasted costs – lower chance of success, therefore can lead to wasted costs
• Less contractual provisions ie warranties/indemnities – more likely to be on S friendly
terms because S’s lawyers draft first AA + competitive bargaining process
• Less control of timetable/access to data room
• Less of an opportunity to spend time with Target management
• Risk of damage to Target
4
