Buying or selling a business is rarely as simple as agreeing a price and shaking hands. Behind every successful deal is a process called due diligence: a thorough legal and financial check that confirms exactly what is being bought or sold, and what risks come with it. Skipping or rushing this stage is one of the most common reasons deals run into difficulty, sometimes long after completion.
What is due diligence?
Due diligence is the investigation a buyer, and their solicitors, accountants and other advisers, carries out before committing to a purchase. Its purpose is to confirm that the business is what it appears to be, to uncover any hidden problems, and to give the buyer the information needed to negotiate price, warranties and protections in the sale agreement.
What does legal due diligence cover?
- Corporate structure: shareholders, directors, company filings at Companies House and any restrictions in the articles of association
- Contracts: supplier and customer agreements, and whether they can be transferred or need consent to change hands
- Employees: contracts of employment, TUPE considerations where a business transfer is involved, and any outstanding disputes
- Property: whether premises are owned or leased, and the terms of any lease
- Intellectual property: trademarks, patents, domain names, and who actually owns them
- Litigation and disputes: any ongoing or threatened claims involving the business
- Regulatory position: licences, permits and industry-specific compliance requirements
- Tax: outstanding liabilities and how the deal is structured for tax purposes
Why sellers need to prepare too
Due diligence isn’t only a buyer’s concern. A seller who gathers their paperwork early, company records, key contracts, employee documentation, often finds the process goes more smoothly and completes faster. Gaps or inconsistencies discovered late in the process can delay a deal, reduce the agreed price, or in some cases cause a buyer to walk away.
How findings shape the deal
The results of due diligence feed directly into the sale and purchase agreement. Issues identified along the way are typically addressed through warranties (promises about the state of the business), indemnities (specific protection against a known risk), or a reduction in price. This is why due diligence and legal drafting tend to run alongside each other rather than as separate stages.
Working with the right advisers
A good due diligence process brings together legal, financial and, where relevant, tax advice. Solicitors focus on the legal risks and draft the protections that follow from what is found; accountants verify the financial position. Having the right team in place from the outset helps keep a transaction on schedule and protects your position, whichever side of the deal you’re on.
Frequently Asked Questions About Buying and Selling a Business
How long does due diligence usually take?
This varies depending on the size and complexity of the business, but it typically takes several weeks. A well-prepared seller, with organised records and contracts ready to hand over, can help the process move more quickly.
What happens if due diligence uncovers a problem?
It doesn’t necessarily mean the deal is off. Issues found during due diligence are often addressed through warranties, indemnities or a price adjustment, allowing the transaction to proceed on revised terms.
Do I need an accountant as well as a solicitor?
Yes, in most cases. Solicitors focus on the legal risks and draft the sale agreement, while accountants verify the financial position and advise on tax. The two roles complement each other.
What’s the difference between a share sale and an asset sale?
In a share sale, the buyer takes over the company itself, including its assets, liabilities and history. In an asset sale, the buyer picks and chooses specific assets, and sometimes employees, without taking on the existing company. Each has different legal, tax and risk implications, so it’s worth discussing which structure suits your situation.
How Oliver & Co Solicitors Can Help
Whether you’re buying a business, selling one, or bringing in new investors, our Corporate team can guide you through due diligence and the wider transaction from start to finish. Contact us today on 01244 312306 or email law@oliverandco.co.uk to find out how we can help.
