Listed below are some of the terms frequently used during the process of buying and selling a business. Neither the list itself nor the explanations given are intended to be exhaustive.
AcquisitionThe purchase by an individual or company of either the assets or shares of another company.
AssetsThe tangible and intangible assets of the company. See below.
Book ValueThe value of a company's assets and liabilities, as recorded in the Balance Sheet.
BrokerThe Business Broker (Business Transfer Agent) provides a discreet and confidential service to a business owner to sell the business to an individual or company.
BuyerThe company or individual who purchases the shares or assets of another company.
Capital Gain The profit from the sale of capital assets. The consideration received less the cost of ownership.
Company SaleThe sale of the shares of a corporate entity, as opposed to the sale of the Goodwill and Assets (see below).
Completion The point at which a transaction is completed, with change of ownership and the transfer of funds.
Covenants Undertakings given by one party to another. For example, it is usual for the vendor to agree not to set up in competition (often qualified in terms of time and geography).
Deferred Payment/ Deferred Element A proportion of the total payment that is held back for a defined period of time. The deferred amount may be paid in tranches defined by time or on the achievement of agreed performance criteria.
Disclosure Letter A document prepared by the vendor and their advisors immediately prior to completion which discloses to the buyer particular situations which qualify the Warranties (see below) given.
Due Diligence An examination by the buyer and his legal and financial advisers, to ensure that the information provided by the vendor is true and accurate, and that the vendor has fulfilled all of his legal obligations.
Earn-out A form of deferred payment in which the payment is contingent upon certain criteria, for example future sales and/or profits, being met.
Energy Performance CertificateAn Energy Performance Certificate (EPC) assesses a building by giving it a standard energy and carbon emission efficiency grade. It is a legal requirement that all commercial properties require an EPC when being sold or let. When a business is being sold a new and up-to-date EPC must be obtained by the owner(s) of the business prior to the sale being completed.
Entrepreneurs Relief Entrepreneurs' Relief replaced Taper Relief as a way of reducing Capital Gains Tax on certain business disposals. The effect of the relief is to reduce to 10% the tax on the first £M2 of lifetime capital gains
Exclusivity A period of time, typically 60 or 90 days, during which the vendor (and his agent) agree not to enter into discussions with other prospective buyers. This period is granted to allow the buyer and his advisers to carry out Due Diligence.
Goodwill An intangible asset representing the value of, for example, the company’s client base, its reputation and potential future earnings.
Goodwill & Asset SaleThe sale of the Tangible and Intangible Assets of a business. In contrast to a Share Sale, the purchaser does not take on responsibility for any of the company’s liabilities. The tax implications are also different.
Heads of Agreement A non-binding written summary of the agreement reached by the vendor and buyer. It provides the basis for further discussion and the drawing up of a Sale/Purchase Agreement.
Intangible Assets Assets that cannot be physically touched, for example Goodwill and Intellectual Property (Patents, Copyright, Trade Marks).
Loans Notes Notes given to the vendor as part payment. Often unsecured or secured by a second lien on the assets of the company.
Management Buy In (MBI) The purchase of a company by an external team of experienced managers.
Management Buy Out (MBO) The purchase of a company by part or all of the existing management team.
Sale & Purchase Agreement A legally binding agreement for the sale and purchase of the shares or assets of a business.
Share Sale The sale of the entire legal entity.
Tangible Assets The physical assets of the business, which may include Property, Plant, Equipment, and Vehicles.
Taper relief Was a valuable reduction in capital gains tax payable on the disposal of assets, related to the qualifying period of ownership of the asset. Now replaced by Entrepreneurs Relief.
Valuation An estimate of the value of a business. A valuation can only be an informed estimate since, like any other sale, the price achieved is determined by the market.
VendorThe owner(s) of the business to be sold
Warranties Undertaking given by the vendor regarding the truth and accuracy of the information given.

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