Mergers.co.uk advises business owners on the commercial sale process and works alongside the owner's legal, tax and other professional advisers through a transaction.
This guide provides general information about UK business sales and is not legal advice. Legal advice should be obtained from a suitably qualified solicitor on the circumstances of a particular transaction.
By Mergers.co.uk · Information reviewed:
In short: what are the main legal considerations when selling a business?
The main legal considerations when selling a UK business are the transaction structure, protecting confidentiality, agreeing clear heads of terms, managing buyer due diligence, confirming the buyer's finance, and obtaining any regulatory or contractual approvals. The sale agreement then sets out the price and terms, supported by warranties, indemnities and a disclosure letter that together determine the seller's risk after completion. Owners also need to deal with employees, property, intellectual property, any deferred consideration or earn-out, and the restrictive covenants they will give, before completion mechanics transfer ownership and funds. The precise legal requirements depend on whether the transaction is a share sale, asset sale, partial sale or investment.
Share Sale or Asset Sale?
The first legal question is what is actually being sold. Most other legal steps follow from the answer.
Share sale
In a share sale the buyer acquires the shares in the company. The company itself continues, under new ownership, and generally keeps its existing contracts, assets, employees, liabilities, intellectual property and property interests, subject to contractual, regulatory and transaction-specific matters such as change-of-control clauses. Because historic liabilities stay inside the company, buyers typically carry out wider due diligence and ask for broader warranty protection.
Asset sale
In an asset sale, specified assets, contracts, employees and liabilities are transferred rather than the shares in the company. The seller's company normally remains, holding whatever was not sold and receiving the proceeds. Transferring particular contracts, licences, property, employees or other rights can require separate legal steps or third-party consents, and the tax consequences differ from a share sale.
| Issue | Share sale | Asset sale |
|---|---|---|
| What the buyer acquires | Shares in the company | Agreed assets and business |
| Company remains intact | Generally yes, under new ownership | Seller company normally remains with the seller |
| Contracts | Usually remain with the company, subject to change-of-control clauses | Usually need to be assigned or novated, often with counterparty consent |
| Employees | Remain employed by the same company | TUPE will often apply |
| Liabilities | Historic liabilities generally stay in the company | Buyer usually takes only the liabilities it agrees to assume |
| Property | Leases stay with the company, subject to lease terms | Leases usually need landlord consent to assign |
| Proceeds | Paid to the selling shareholders | Paid to the company, which then has to distribute them |
A partial sale or investment is usually structured as a sale or issue of shares, so it adds a further layer: the shareholders' agreement and articles that govern the relationship afterwards. Minority stake protections explains the rights typically negotiated.
Confidentiality and the NDA
Before sensitive information is shared, prospective buyers normally sign a non-disclosure agreement. A well-drafted NDA restricts use of the information to evaluating the transaction, limits who can see it and often prevents the buyer approaching your employees, customers or suppliers. It reduces risk but cannot remove it, so information is usually released in stages. Selling without employees finding out covers the practical side.
Heads of terms
Heads of terms (also called a letter of intent) record the agreed price, structure, payment terms, any deferred or contingent consideration, key conditions, the expected timetable and the role of the owner after completion. The main commercial terms are usually stated to be non-binding, while exclusivity, confidentiality and sometimes costs provisions are binding. Points left vague here tend to be renegotiated later, when the seller's leverage is lower, which is why detail at this stage matters. The commercial side is covered in negotiating business sale deal terms.
Legal due diligence
The buyer's lawyers will review the company's constitution and share records, material contracts, employment arrangements, property, intellectual property, disputes, regulatory compliance, data protection and financing documents. Common problems include missing statutory records, unsigned or expired customer contracts, IP owned by a founder or contractor rather than the company, and informal employment terms. Preparing a well-organised data room in advance shortens the process; see the due diligence checklist and whether a buyer can reduce their offer after diligence findings.
Buyer finance, consents and approvals
A seller should understand early how the buyer is funding the deal and whether completion depends on that funding. Other conditions can include consent from key customers or suppliers under change-of-control clauses, landlord consent, lender consent, and regulatory approvals. Some regulated sectors require regulator approval of a new owner. Whether any of these apply depends on the business and the buyer, and should be confirmed with your solicitor.
Can Customers or Suppliers Stop a Business Sale?
They cannot usually prevent the sale itself, but important contracts can give them rights that affect it. Contracts may contain change-of-control provisions, consent requirements, termination rights, restrictions on assignment, or obligations to notify the other party. In a share sale the contract stays with the company, so change-of-control wording is the main issue; in an asset sale the contract usually has to be assigned or novated, which often needs the counterparty's agreement.
Major customer, supplier, licence, framework and funding agreements should be reviewed early. This matters most where a large share of value depends on a small number of contracts: a buyer is likely to make consent from those counterparties a condition of completion, and the timing of those approaches needs careful planning to protect confidentiality.
Competition and Merger Control
Some acquisitions can be reviewed by the Competition and Markets Authority (CMA) under the Enterprise Act 2002. GOV.UK guidance sets out three tests, and a merger must meet at least one to qualify for investigation:
- Turnover test: the business being acquired has UK annual turnover of at least £100 million.
- Share of supply test: the combined businesses would supply at least 25% of a product or service in the UK or a part of it, the share would increase, and one of the businesses has UK turnover of at least £10 million.
- Hybrid test: one business supplies at least 33% of a product or service in the UK or a part of it and has UK turnover of over £350 million, and the other has a UK connection.
Most owner-managed business sales do not meet these tests, so the great majority of SME transactions will not involve CMA review. Where a buyer is large or the combined business would have a strong position in a particular market or region, specialist competition law advice should be taken early.
National Security and Investment Act
Under the National Security and Investment Act 2021, acquisitions of certain qualifying entities active in 17 sensitive areas of the UK economy are notifiable. Where the rules apply, the acquirer is legally required to notify the government and obtain approval before completion. GOV.UK guidance states that completing a notifiable acquisition without approval makes it void and can expose the acquirer to civil or criminal penalties. The regime is administered by the Investment Security Unit in the Cabinet Office.
The areas include advanced materials, advanced robotics, computing hardware, defence, military and dual-use, energy, transport and communications. Whether a business is in scope depends on its precise activities, not its general sector label, so some engineering and manufacturing businesses may be affected while many are not. The government can also call in some acquisitions that are not notifiable. If there is any possibility the business falls within scope, take specialist advice before heads of terms, because notification affects the timetable.
Discuss Your Transaction Options
Structure, buyer type and timing shape the legal work that follows. A confidential conversation can help you decide the right route before documents are drafted.
The sale agreement
In a share sale the principal document is the share purchase agreement (SPA); in an asset sale it is an asset or business purchase agreement. It sets out what is sold, the price and how it is calculated and paid, conditions to completion, warranties and indemnities, limitations on the seller's liability, restrictive covenants and what happens if things go wrong. The price mechanism, whether completion accounts or a locked box, interacts with cash, debt and working capital; see what happens to the cash in the bank.
Warranties, indemnities and disclosure
Warranties are statements about the business, covering areas such as accounts, contracts, employees, tax, property, IP and litigation. If a warranty proves untrue and the buyer suffers loss, the buyer may have a claim.
Indemnities are generally promises to reimburse specific liabilities, often those identified in due diligence, and a tax covenant or tax indemnity is common in share sales.
The disclosure letter is the seller's formal opportunity to qualify the warranties by disclosing exceptions. Matters fairly disclosed usually cannot found a warranty claim, so thorough, specific disclosure is one of the most effective ways a seller manages post-completion risk.
The agreement normally limits claims through time limits, an overall cap, minimum thresholds and exclusions. Some transactions use warranty and indemnity insurance. The appropriate position depends on the deal, and this is where specialist legal advice is essential.
Employees and TUPE
In a share sale, employees remain employed by the same company. In an asset sale, the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) will often apply, transferring employees on their existing terms and imposing obligations to inform and, in some cases, consult. Key-person retention, bonuses linked to the sale and any planned changes after completion also need careful handling with an employment lawyer.
Property and intellectual property
Buyers will check that the company owns or has proper rights to the premises and assets it uses. Leases may contain change-of-control or assignment restrictions. For intellectual property, the common issue is that software, designs, brands or know-how were created by founders, contractors or agencies without a written assignment to the company. These gaps are usually fixable, but more easily before a buyer finds them.
Data Protection During a Business Sale
Due diligence and the wider transaction process can involve commercially sensitive information and personal data about employees and customers. Sellers should limit what is disclosed to what a buyer genuinely needs at each stage, anonymise or redact personal information where appropriate (for example, sharing salary bands rather than named employee records early on), and use a secure data room with controlled access.
The ICO's guidance on data sharing in mergers and acquisitions says organisations must consider data sharing as part of due diligence, including the purposes for which data was originally obtained and the lawful basis for sharing it, and must ensure sound governance, accountability and security. The ICO currently notes that this guidance is under review following the Data (Use and Access) Act 2025 and may change, so owners should check the current position with their advisers rather than treat it as settled.
Deferred consideration and earn-outs
Where part of the price is paid later, the legal drafting determines how secure it is. Owners should understand how any earn-out is measured, who controls the business during the earn-out period, what accounting policies apply, what happens if the business is sold on or restructured, and what security, if any, supports future payments. The same applies to rollover equity in a two-stage exit.
Legal Structure and Tax Need to Be Considered Together
The same headline price can produce materially different outcomes depending on structure. A share sale and an asset sale are taxed differently; deferred consideration, earn-outs, rollover equity and retained shares each raise their own questions about timing and treatment; property held inside or outside the company affects both structure and tax; and how proceeds reach shareholders matters as much as the headline figure. This guide does not give tax advice. Involve your accountant and tax adviser early, before heads of terms, so that the legal structure and the tax position are designed together rather than reconciled afterwards.
Restrictive covenants
Sellers are usually asked not to compete with the business, solicit its customers or employees, or use its confidential information for a period after completion. Their scope and duration should be reasonable and consistent with the seller's future plans, and your solicitor can advise on what is likely to be appropriate.
Completion
Completion is when ownership transfers and funds are paid. It typically involves signing the sale agreement and disclosure letter (sometimes on the same day as completion, sometimes earlier with conditions to satisfy), board resolutions, resignations and appointments, stock transfer forms or asset transfer documents, repayment of any debt being settled and release of security, and the transfer of funds through solicitors. Filings, stamp duty and post-completion adjustments follow.
The solicitor's role and the M&A adviser's role
Your solicitor advises on legal structure, documents and risk. A sell-side M&A adviser runs the commercial process: preparing the business, identifying and approaching suitable buyers, creating competition, negotiating price and heads of terms, and keeping the transaction moving through due diligence to completion. The two roles are complementary. See what an M&A adviser does, the sell-side process and preparing a business for sale.
Legal preparation checklist
A preparation checklist for owners. It is not a substitute for legal due diligence or for advice from your solicitor.
- Confirm who owns the shares and that the share register matches
- Locate shareholder agreements, articles and any side agreements
- Review Companies House records and statutory filings
- Identify charges, security and guarantees given by the company or by you personally
- Prepare a clear corporate structure chart
- Review key customer contracts
- Review key supplier, licence and framework contracts
- Identify change-of-control, consent and assignment clauses
- Confirm the company owns its IP, with written assignments from founders and contractors
- Organise property documents: leases, licences and title
- Review employment contracts, policies and any bonus or share schemes
- Identify disputes, claims and regulatory correspondence
- Identify licences and regulatory permissions needed to trade
- Organise insurance policies and claims history
- Review data-protection records and policies
- Identify connected-party arrangements, such as loans or property owned by shareholders
- Review finance agreements for lender consent or repayment requirements
- Review the tax position with your accountant and tax adviser
Common questions
Do I need a solicitor to sell my company?
In practice, yes. The sale agreement, disclosure letter and completion documents allocate risk between you and the buyer for years after completion. Instruct a solicitor with corporate transaction experience rather than relying on the buyer's lawyers or a generalist.
When should I appoint a solicitor?
Ideally before heads of terms are signed, and earlier still if there are structural or tidy-up issues to resolve. Many of the points that matter in the sale agreement are shaped by the heads of terms, and they are hard to change once agreed.
What is a share purchase agreement?
A share purchase agreement (SPA) is the main contract in a share sale. It records what shares are sold, the price and how it is paid, any conditions to completion, the warranties and indemnities the seller gives, the limits on the seller's liability and any restrictive covenants.
Are heads of terms legally binding?
Usually not on the main commercial terms, such as price and structure, but heads of terms often contain binding provisions on confidentiality, exclusivity and costs. The position depends on the wording, so have your solicitor review them before signing.
What warranties will I have to give?
Typically warranties covering the company's accounts, contracts, employees, tax, property, intellectual property, compliance, disputes and data protection. The scope, and the limits on your liability for them, are negotiated and depend on the deal and the buyer.
What is a disclosure letter?
A disclosure letter is the seller's formal document setting out exceptions to the warranties. Matters fairly disclosed in it generally cannot form the basis of a warranty claim, which is why thorough and specific disclosure is one of the main ways a seller limits risk after completion.
Can a buyer sue me after completion?
Potentially, if a warranty proves untrue or an indemnified liability arises. The sale agreement normally limits claims by time period, financial caps, minimum thresholds and what was disclosed. Some transactions also use warranty and indemnity insurance.
Can I be prevented from starting another business?
Sellers are usually asked to accept restrictive covenants: not competing with the business, not soliciting its customers or staff, and not using its confidential information for a period after completion. Their scope and duration are negotiated and your solicitor can advise on what is reasonable.
What happens to employees when I sell?
In a share sale, employees normally stay employed by the same company, so their employer does not change. In an asset sale, TUPE will often apply, transferring employees to the buyer on their existing terms and imposing information and consultation duties. Take employment law advice on your transaction.
What happens if a customer contract has a change-of-control clause?
Depending on the wording, the customer may need to consent to the sale, be notified, or have a right to terminate. Buyers will want to know which key contracts are affected, and consent may become a condition of completion. Review important contracts early so the issue can be planned for.
Can part of the purchase price be paid later?
Yes. Deferred consideration and earn-outs are common. The legal drafting determines how secure future payments are: how they are calculated, who controls the business in the meantime, and what happens if the buyer sells or restructures it.
What legal rights do I need if I retain shares?
If you keep a stake, the shareholders' agreement and articles govern your position: information rights, board representation, consent rights over major decisions, and what happens on a future sale, such as tag-along and drag-along rights. See minority stake protections for the rights typically negotiated.
Can a sale complete before all regulatory approvals are received?
Not where approval is a legal requirement. For example, completing a notifiable acquisition under the National Security and Investment Act without government approval makes it void. Where approvals or consents are needed, they are usually made conditions of completion, with a gap between signing and completing.