When the shares in a company are acquired, the new owner acquires the company in its entirety including its history. As such, there is a greater commercial risk compared to simply acquiring an asset as the value of the company in the future can be seriously affected by events or liabilities that have occurred in the past.
In view of the above, a greater level of work is recommended prior to the acquisition to ensure that the company’s affairs are in order and to highlight past events and risks so that appropriate protection is offered to the purchaser.
A common area of risk lies within the company’s tax affairs e.g. corporation tax, VAT, employer taxes etc. It is important for a buyer and their advisers to consider the areas of risk for that particular company so that they are aware of potential tax liabilities that may arise after the purchase but which relate to past events. Areas of concern will vary from company to company and therefore a thorough review should be undertaken to highlight these and to enable the seller to address any relevant points.
Similarly, a seller may be required to provide warranties against certain potential liabilities that could arise or alternatively disclosures regarding possible issues. These need to be considered with the company’s affairs to ensure that the seller is protected from unwanted claims.
Freestone Jacobs has significant experience advising both buyers and sellers and assisting them through the due diligence and disclosure process.
For more information please contact us.