Buying and Selling a Business in Jersey

Heads of Terms set out the main terms agreed in principle between the parties to purchase a business.

A share purchase agreement is an agreement that sets out the terms and conditions relating to the sale and purchase of shares in a company. The seller(s) agrees to sell a specific number of shares to the buyer for a specified price together with other relevant terms and conditions of the sale.

An asset transaction involves the purchase or sale of some or all of a company’s assets, such as equipment, inventory, real property, contracts or lease agreements. An agreement similar to a share purchase agreement will be provided but the agreement’s subject will be assets, not shares.

This is a fact-finding exercise about the business that is being purchased; its accounts, employees, clients, assets and liabilities. This may require a multi-professional team to advise on the various issues. It is essential to follow a due diligence process to ensure the purchaser can evaluate the pros and cons of purchasing a business. Due diligence is relevant to both seller and buyer and can take time to deal with.

Representations are assertions of fact that persuade another party to enter into a contract. A representation is typically information used by a party to decide whether to enter into a contract.

Warranties are essentially promises by the seller to the buyer as to the accuracy of the information provided during a due diligence process.

Indemnities are promises by the seller to make good potential losses that may be incurred by the buyer.

A ‘Condition Precedent’, is a condition agreed by the parties that must be satisfied, or waived, before the agreement may complete. In general terms the failure to satisfy a ‘Condition Precedent’ typically gives the other party the right to abandon the transaction without liability.

The typical issues associated with buying or selling a business in Jersey depends on several factors, including (but not limited to):

• The nature of the industry within which the business operates
• The type and size of the business
• Statutory and other regulatory requirements
• The size of the business
• The business premises
• The business assets and liabilities
• The nature of operations
• The employment arrangements
• The extent to which the business utilises land
• The relevance of intellectual property to the business

This will very much depend upon the nature of the business being purchased. As a buyer, you must restrict a seller from competing against you as this could harm your business. A restrictive covenant would only be enforceable by the Royal Court if it does no more than adequate to protect the business interest. In other words, it must be reasonable.

When considering buying an existing business, we recommend consulting legal advice.  A lawyer will make thorough inquiries on your behalf about all factors concerning the sale to protect you throughout the transaction and review the purchase contract. Proceeding without legal advice for buying a business could impact your purchase and ultimately on your profits. There is a lot to consider about exactly what you are buying, so clarity in the documentation is crucial. If employees are staying on, you’ll need to approach that appropriately to ensure you are not left with a payout liability as a seller or liability as a purchaser.

Selling a business can be a complex process, and we recommend legal advice to help you from the negotiation stage right through to completion of the sale. For example, if a potential buyer has due diligence queries that you do not adequately address, this could affect the sale further down the line. Missing important steps like this can result in a claim for breach of a warranty and/or misrepresentation. Seeking legal advice for selling a business can help avoid costly issues like this, as lawyers will have a thorough knowledge of the sales process.

If you are buying a business that leases existing premises, An experienced lawyer must review the lease. This will be the case whether you are buying the shares in the company business or whether the seller is assigning the business lease. It might be the case that the lease you are about to take over contains unfavourable terms that you wish to vary, such as the rent review process, termination rights, indemnities and lease terms and options.

When buying a business, it is imperative that you make sure you have (or obtain) all necessary regulatory licensees, authorisations and permits required to conduct business legally. These all need to be reviewed to ensure that when you complete the transaction you can commence business smoothly.