Chapter 20 Flashcards
What is a “share sale”
When a shareholder sells their share and the purchases becomes the new shareholder and sole owner of the company
What is an “asset sale”
When the company itself sells the individual assets that it owns to a purchaser
(can be undertaken by any type of business)
Is share sale good for the vendor or purchases in terms of tax? Likewise for an asset sale?
Share sale - Better for the vendor
Asset sale - Better for purchases
How could the purchaser protect the goodwill of the business when entering into a contract with the vendor?
It could contain appropriate restrictive covenants
List the things involved in the purchaser carrying out due diligence
- Sending a list of standard pre-contract enquiries
- Asking the accountant to prepare a report
- Making enquiries of third parties
- Obtain a warrant from vendor that the company doesn’t have any liabilities (these depend on nature of business)
- Can seek specific indemnities
What happens if redundancies are made after the purchaser?
The purchaser could agree with the vendor about splitting the costs of redundancy that will be incurred by the company
What is a “heads of agreement”
It is a non-binding document which sets out the key terms of a proposed agreement between parties. However, can be legally binding if agreed upon in certain conditions:
- Confidentiality
- Exclusivity period
- Costs
