Buying or selling a business: what to expect | Lawyerly

Most business sales in England and Wales follow the same six stages: preparation, offer and heads of terms, due diligence, negotiation of the sale agreement, exchange and completion, and the handover afterwards. Buyers and sellers who know what each stage involves, and what usually goes wrong, keep more of the value they set out to protect. This guide explains what to expect at each stage, how long it takes, what it costs, and the pitfalls we see most often on both sides of the table.

What are the main stages of buying or selling a business?

Most deals move through six stages, and a typical sale of a small or medium-sized business takes three to six months from heads of terms to completion, longer if a lender, landlord or regulator is involved.

1. Preparation. The seller gets its records, contracts and finances in order; the buyer settles its reasons for buying, its funding and its walk-away points.
2. Offer and heads of terms. The parties agree the price, structure, timetable and main conditions in outline, usually with a period of exclusivity, during which the seller agrees not to negotiate with anyone else.
3. Due diligence. The buyer and its advisers investigate the business: legal, financial, tax, and often commercial, property, IT and HR.
4. The sale agreement. The buyer's solicitor usually drafts the share or asset purchase agreement; the seller responds with a disclosure letter.
5. Exchange and completion. Exchange is when the parties sign and the agreement becomes binding; completion is when ownership passes and the price is paid. On smaller deals both often happen on the same day. Where consents or approvals are needed, the parties exchange first and complete once the conditions are met.
6. After completion. Filings, notifications to customers and suppliers, any deferred payments, and the practical handover from the seller.

Should the deal be a share purchase or an asset purchase?

The right structure depends on what is being sold and who should bear the risk. Buyers often prefer to buy assets; sellers usually prefer to sell shares.

• Share purchase. The buyer acquires the company itself, so contracts, employees and licences generally stay where they are. But the buyer also inherits the company's full history, including liabilities nobody has found yet. Stamp duty of 0.5% is payable on the price of the shares.
• Asset purchase. The buyer chooses the assets and the liabilities it will take, leaving the rest with the seller's company. It is more work: contracts and leases may need the other party's consent to transfer, and employees move across automatically under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE). VAT and stamp duty land tax on any property need planning, and the sale may qualify as a transfer of a going concern, the VAT treatment for a business sold as a running operation rather than as a collection of assets, so that VAT is not charged.

For the seller, a share sale usually gives a cleaner exit, because the liabilities go with the company, and is often more tax-efficient. On an asset sale the money is paid to the company, and getting it out to the owners can trigger a second layer of tax.

What should be in the heads of terms?

Heads of terms, the short document in which the commercial points are agreed before the full contract is drafted (sometimes called a letter of intent or term sheet), should cover the price and how it is paid, the structure, what is included and excluded, the timetable, the main conditions, and the protections each side expects in the sale agreement.

Heads of terms are mostly not legally binding, but a few clauses usually are: confidentiality, exclusivity and, sometimes, costs. Exclusivity matters most to a buyer about to spend money on due diligence. It should be for a fixed period and properly agreed; if the seller breaks it, the remedy is usually the buyer's wasted costs, not the business.

This is the point at which each side has the most leverage. Points left vague, such as how the price is adjusted, whether part of it is deferred, or what restrictions the seller will accept after the sale, are harder to win once exclusivity has started and other bidders have gone.

How is the price paid, and can it change?

The headline price is rarely the amount that changes hands on the day. Expect adjustments for cash, debt and working capital, and sometimes deferred or contingent payments.

• Completion accounts. Completion accounts are drawn up after completion, and the price is adjusted up or down to reflect the actual cash, debt and working capital on the completion date.
• Locked box. In a locked box deal the price is fixed by reference to a recent balance sheet, and the seller promises that no value has been taken out of the business since then, whether as dividends, unusual payments to the owners or similar (known as leakage). It gives certainty but puts the risk on the buyer from the locked box date.
• Deferred consideration and earn-outs. Part of the price is paid later. In an earn-out, that later payment depends on the business hitting agreed targets after the sale. Earn-outs bridge a gap in valuation but are a common source of disputes, so the targets, the accounting rules and how the buyer may run the business in the meantime need to be spelled out.
• Retentions and escrow. Part of the price is held back, by the buyer or in a separate account controlled by both sides (escrow), for an agreed period to cover warranty claims or known issues.

What happens during due diligence?

Due diligence is the buyer's investigation of the business: what it is really buying, what liabilities come with it, and whether the business can keep performing without the seller. In English law the starting point is "buyer beware", so the buyer's protection comes from what it finds and what it negotiates into the contract.

The seller usually sets up a data room, a secure online folder of the company's documents that the buyer and its advisers can review, and answers the buyer's questions. Legal due diligence typically covers:

• corporate records, share ownership and Companies House filings;
• key customer and supplier contracts, including change of control clauses, which let the other party terminate or renegotiate if the company's ownership changes;
• employees, contracts, pensions, and any disputes or tribunal claims;
• property, leases and landlord consents;
• intellectual property, including who actually owns the brand, software and content;
• data protection, IT systems and cyber security;
• licences, regulatory compliance, litigation and insurance; and
• debt, security and guarantees.

Due diligence usually ends with a report, which shapes the price, the warranties and indemnities the buyer asks for, and any conditions or pre-completion steps. If the buyer is acquiring personal data about customers or staff, the data room should be set up so that only what is needed is shared, and the confidentiality agreement should cover its use. Our page on buying a business sets out how we approach due diligence for buyers.

Warranties, indemnities and disclosure: who carries the risk?

Warranties, indemnities, the disclosure letter and the limits on claims decide who bears the risk of problems found after completion.

• Warranties. Warranties are statements of fact about the business that the seller gives in the sale agreement, for example that the accounts are accurate or that there are no disputes. If a warranty is untrue and that reduces the value of the business, the buyer can claim damages. The buyer has to prove its loss, so warranties are as much a way of drawing out information as a remedy.
• Disclosure letter. The disclosure letter is the seller's letter setting out the exceptions to the warranties. A fair disclosure generally prevents a claim on that point, so buyers should read it as carefully as the agreement itself.
• Indemnities. An indemnity is a pound-for-pound promise to cover a specific loss, often one identified in due diligence, such as a known dispute or a tax exposure. The buyer does not have to show that the value of the business has fallen. Tax is often dealt with in a separate tax covenant, an indemnity from the seller for tax liabilities arising before completion.
• Limits on claims. Sellers will ask for a cap on total liability (often linked to the price), a minimum claim size, a threshold before claims can be made, and time limits. These limits are where much of the negotiation happens.
• Warranty and indemnity insurance. On some deals, insurance covers claims under the warranties, so the buyer claims against the insurer rather than the seller. It can help a clean exit for the seller, but it has exclusions and a cost.

Are there any approvals or consents needed?

Often, yes. The most common are landlord, lender and key customer consents, shareholder approvals and, in some sectors, government clearance.

• Third-party consents. Leases, finance agreements and important contracts may need consent to an assignment or to a change of control. Identify them early: they are a common cause of delay. Where the business occupies leased premises, our commercial lease team deals with landlord consent as part of the transaction.
• National security. Under the National Security and Investment Act 2021, buying more than 25%, more than 50% or 75% or more of the shares or votes in a company that carries on certain activities in one of the 17 mandatory sectors (such as defence, data infrastructure, artificial intelligence and energy), or gaining votes that can block resolutions, must be notified and approved before completion. A deal completed without approval is void. Buying assets rather than shares is not subject to mandatory notification, but the government can still call it in for review. The sectors are under review, so check the current list before signing heads of terms.
• Competition. Merger control rarely applies to deals of this size. Since January 2025, a deal where each party's UK turnover is below £10 million falls outside the Competition and Markets Authority's jurisdiction to review mergers.
• Regulated businesses. Change of control in sectors such as financial services, care and some licensed activities may need regulatory approval.
• Corporate approvals. The articles, a shareholders' agreement, or the buyer's lender may require approvals or consents of their own.

What about the employees?

On a share sale, employees stay employed by the same company. On an asset sale, TUPE usually transfers them automatically to the buyer on their existing terms, with their length of service preserved.

Under TUPE, the seller and buyer must inform, and sometimes consult, affected employees, and the seller must give the buyer information about the transferring staff in good time. Dismissals because of the transfer are automatically unfair unless there is an economic, technical or organisational reason entailing changes in the workforce, a narrow category the tribunals interpret strictly. On either structure, the buyer should understand who the key people are and whether they are staying, and the seller should think about how and when staff are told. Our employment team advises on TUPE information and consultation.

What will the seller be asked to agree after the sale?

Sellers are usually asked to accept restrictive covenants, promises not to compete with the business, poach staff or approach customers for a period, and often to help with the handover.

Restrictive covenants given by a seller on a sale are enforced more readily than those in an employment contract, but they still need to be reasonable in length, area and scope to protect the goodwill the buyer has paid for. A seller staying on as a director, employee or consultant will also have a service or consultancy agreement, and should check how that interacts with any earn-out.

How long does it take, and what does it cost?

Three to six months is typical for a small to medium-sized deal, but the timetable is driven more by due diligence, third-party consents and funding than by the legal drafting.

Costs depend on the size and complexity of the deal, the structure and how organised the seller is. Each side usually pays its own legal, accountancy and other advisers' fees. The buyer pays stamp duty on a share purchase, and stamp duty land tax on any property on an asset purchase. For the seller, the main tax is usually capital gains tax on the sale: Business Asset Disposal Relief can reduce the rate on qualifying gains to 18% for disposals from 6 April 2026, up to a lifetime limit of £1 million. Take tax advice before agreeing the structure.

How can a seller prepare for a sale?

The best preparation is to fix the problems a buyer will find before the buyer finds them. Problems a buyer uncovers late in due diligence damage trust and are often used to reduce the price, while those the seller raises early can be explained on its own terms. That starts with the company's records: bring Companies House filings, statutory registers and share records up to date, including the register of people with significant control, and check that every director and person with significant control has verified their identity with Companies House, which has been a legal requirement since 18 November 2025. A company cannot file its confirmation statement until its directors are verified.

Then the contracts and assets. Make sure written contracts are in place with key customers, suppliers and staff, and check them for change of control clauses. Confirm the company owns its intellectual property, including work done by founders, freelancers and agencies. Tidy up property, leases and landlord consents, and resolve or document any disputes, informal arrangements or side deals.

Finally, reduce the business's dependence on you personally, so that its value does not leave with you, and take tax advice on structure and reliefs well before the sale. Our page on selling a business covers sale-readiness reviews in more detail.

How can a buyer protect itself?

A buyer protects itself by being clear on why it is buying, keeping the price open until due diligence is done, and negotiating protection for what due diligence finds. In practice that means settling funding, and what any lender needs, before making an offer; getting exclusivity and a proper confidentiality agreement before spending money on due diligence; and focusing due diligence on where the value really sits, which is usually the contracts, the people, the customers and the seller's role.

Due diligence findings should then be turned into something concrete: a price change, a specific indemnity, a condition or a fix before completion. Anyone the buyer intends to appoint as a director at completion needs to have verified their identity with Companies House beforehand, because the appointment cannot be filed without it. Plan the first 100 days too: the handover, communication with staff and customers, and the post-completion filings.

Frequently asked questions

Do I need a solicitor to buy or sell a business?

There is no legal requirement, but the sale agreement allocates risk that can be worth more than the price. Each side should have its own solicitor; one firm should not act for both buyer and seller.

Who drafts the sale agreement?

Usually the buyer's solicitor, although on auctions or competitive sales the seller's solicitor often prepares the first draft.

Is a letter of intent binding?

A letter of intent is another name for heads of terms. It is mostly not binding, but confidentiality, exclusivity and costs clauses usually are. Read it as carefully as the final agreement.

Can the buyer walk away after due diligence?

Yes, until the sale agreement is signed, subject to any binding costs or exclusivity terms in the heads of terms.

What happens to the business's bank accounts and finance?

On a share sale the company keeps its accounts, but existing loans often contain change of control clauses and may need to be repaid or consented to at completion. On an asset sale the buyer sets up its own banking and the seller's company repays its own debts from the proceeds.

Does a small business need clearance under the National Security and Investment Act?

Only if it carries on activities in one of the mandatory sectors, but there is no minimum size, so it is worth checking early.

In summary

The structure comes first, because a share purchase and an asset purchase lead to different tax, consents, employee positions and risk, and changing course after heads of terms is costly. Heads of terms are where each side has the most leverage, so the points that matter, including keeping the price subject to due diligence, should be settled there. The headline price is rarely what is paid: completion accounts, locked boxes, earn-outs and retentions all change the figure, and the warranties, disclosure letter and limits on claims decide who pays for problems found later.

Approvals deserve early attention. Landlord, lender and customer consents cause most delays, and the National Security and Investment Act applies whatever the size of the deal. Sellers who prepare before going to market sell faster and keep more of the price, and buyers who focus due diligence on where the value sits avoid the most expensive surprises.

This article is general information on the law of England and Wales as at October 2026. It is not legal or tax advice on any particular transaction, and you should take advice on your own circumstances before buying or selling a business.

Lawyerly's solicitors act for buyers and sellers of businesses, acting for one side only in any transaction, with each phase priced and agreed before work begins. You can read more on our mergers and acquisitions page.