We often hear about big business mergers and acquisitions in the news, with Virgin Media and O2 merging earlier in 2020 and online fashion retailer Asos acquiring Topshop and Topman last year.
But what about small and medium size business acquisitions?
In this article, Corporate & Commercial Associate Sarah Sillar provides advice for companies looking to acquire another business; looking at how acquisition agreements work and the terms included…
What is a business acquisition?
In the case of sole traders and partnerships, both of which have no shares, acquisitions are achieved by the purchase of a company’s assets.
What is an asset acquisition?
This is known as a ‘asset acquisition’. The ‘assets’ will include physical assets, such as stock, property, equipment and vehicles and also intangible assets, such as goodwill and intellectual property rights.
The Sellers will receive the sale proceeds personally and will be responsible for ending all contractual arrangements which are not assigned to the buyer and will remain entitled to receive any monies owed to the business and responsible for any liabilities owed by to the business up to the point of completion.
It is also possible for a Limited Company to dispose of its assets, when this happens the purchaser takes only the assets and the purchase proceeds remain within the limited Company until it takes steps to distribute these to its shareholders.
What is a share acquisition?
Usually in the case of limited companies acquisition refers to an individual or company purchasing the majority shares of another company that operates a business. This is known as a ‘share acquisition’.
This article will predominantly focus on share acquisitions in limited companies.
How does an acquisition work?
An individual or company which purchases more than 50% of the issued share capital of another company becomes the majority shareholder.
The majority shareholder has a controlling share and can make decisions, such as appointing new Directors to form a new management team and passing shareholder resolutions regarding the newly acquired business.
They will not require the consent of minority shareholders to make most decisions.
If the majority shareholder is a company, then, together with the target company, they will form one group, being holding company and subsidiary.
What happens during an acquisition?
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