Buying a Business in the UK: Legal Checklist for SMEs and Startups

Buying an existing business can feel like a shortcut to growth. You’re not starting from zero - there’s already a customer base, suppliers, systems, staff, and (hopefully) revenue.

But buying a business can also come with hidden risks if you don’t do the legal groundwork properly. The “business” you think you’re buying might not actually own key assets, might have contracts that can’t be transferred, or could carry liabilities you didn’t price in.

Don’t stress - with the right process (and the right documents), you can buy a business with confidence and set yourself up for a smooth handover.

Below is a practical legal checklist for SMEs and startups planning a purchase of a business in the UK, written from the buyer’s perspective.

1) What Type Of Purchase Are You Making: Asset Purchase Or Share Purchase?

One of the first (and biggest) legal decisions is what you’re buying.

Asset Purchase (Buying The Business Assets)

In an asset purchase, you buy specific assets used in the business (for example, stock, equipment, IP, customer lists, the website, contracts - if transferable) rather than buying the company itself.

Why SMEs often like asset purchases:

• You can “pick and choose” what you’re buying (and what you’re not).
• It can reduce the risk of inheriting unknown liabilities (like historic tax issues or old claims).
• It’s often simpler if the seller is a sole trader or partnership.

But watch out: many important items (leases, licences, supplier/customer contracts, software subscriptions) may not automatically transfer. You’ll often need third-party consents or brand-new agreements.

Share Purchase (Buying The Company Shares)

In a share purchase, you buy the shares in a limited company. The company still owns everything it owned before - and it still owes everything it owed before.

Why a share purchase can be attractive:

• Contracts, leases, and licences may continue without needing a transfer (because the contracting party - the company - stays the same).
• Operationally, it can feel like “business as usual” for customers and suppliers.

But the risk is clear: you’re buying the company “warts and all”, so due diligence and warranties/indemnities become especially important.

If you’re not sure which structure suits your deal, it’s worth getting advice early - the legal structure affects everything from risk to tax to timelines. For tax structuring and accounting questions, you should also speak to your accountant or tax adviser, as Sprintlaw doesn’t provide tax or accounting advice.

2) The Due Diligence Checklist: What You Should Check Before You Commit

Due diligence is the process of checking what you’re really buying, and what risks you might be taking on. When you’re planning a purchase of a business, it’s where you find deal-breakers (or price-negotiation points) before it’s too late.

As a buyer, you’ll usually request information in categories like these:

Company And Ownership Checks

• Who owns the business/assets/shares, and do they have authority to sell?
• If it’s a company: confirm directors, shareholders, filings, and any charges/security registered.
• Any disputes between founders/shareholders?

Financial And Tax Checks (With Your Accountant Or Tax Adviser)

• Recent accounts, management accounts, and cash flow.
• Tax compliance (PAYE, VAT, corporation tax).
• Any loans, director loan accounts, or hire purchase agreements tied to key equipment.

Key Commercial Contracts

• Top customers: are revenues concentrated in a few clients?
• Supplier contracts: pricing, minimum orders, exclusivity, termination rights.
• Do contracts allow assignment/transfer (asset sale) or do they have change of control clauses (share sale)?

Employment And Workforce

• Who are the employees, and what are their roles, salaries, benefits and notice periods?
• Any grievances, disciplinaries, tribunal threats, or long-term sickness issues?
• Do you have up-to-date written terms for staff, such as an Employment Contract?

Property And Lease Arrangements

• Is the premises owned or leased?
• Are there restrictions on assignment, underletting, or change of use?
• Are there rent reviews, break clauses, repair obligations, or arrears?

For many SMEs, the premises terms can make or break the deal - especially in retail, hospitality, and manufacturing. A Commercial Lease Review can be a smart step before you exchange contracts.

Intellectual Property (IP) And Brand

• Who owns the brand name, logo, domain, and website content?
• Who owns software code, product designs, marketing assets, training materials, and processes?
• Has any IP been created by freelancers or contractors without a written IP assignment?

IP ownership issues are very common in smaller businesses. If the “business” is mainly its brand or digital assets, you’ll want clear transfer documents like an IP Assignment.

Data Protection And Privacy

If the business holds customer data (email lists, booking records, health info, payment history, marketing lists), you need to think about UK GDPR and the Data Protection Act 2018.

• What data is held, where is it stored, and who has access?
• Is there a lawful basis for marketing?
• Are there any historical data breaches or complaints?

If you’re inheriting supplier or processor relationships (for example, a CRM provider or outsourced IT), you may need updated paperwork like a Data Processing Agreement.

3) The Deal Documents: What You Need In Writing (And Why It Matters)

Buying a business isn’t just a handshake and a bank transfer. You need clear deal documents that define what’s being sold, when it transfers, who is responsible for what, and what happens if something goes wrong.

Heads Of Terms (Or A Term Sheet)

This is usually the first written document that outlines the agreed “commercial deal” - price, structure (asset vs share), deposit, exclusivity, and timelines. It’s often mostly non-binding, but can include binding clauses (like confidentiality and exclusivity).

Business Sale Agreement / Share Purchase Agreement

This is the core contract. It should cover:

• What’s included (assets, stock, IP, goodwill, contracts, premises arrangements).
• Price and payment structure (completion payment, deferred consideration, earn-outs).
• Completion mechanics (what must happen on completion day).
• Warranties (seller promises about the business).
• Indemnities (seller agrees to cover specific risks if they arise).
• Restraint/non-compete clauses (to stop the seller immediately competing).

For many SMEs, a properly drafted Business Sale Agreement is where you lock in the protections that make the deal commercially safe.

Disclosure Letter (Common In Share Sales)

If you’re buying shares, the seller will often “disclose” exceptions to warranties - basically, listing issues that would otherwise breach their promises. This is a key negotiation document because it defines what you can and can’t claim for later.

Completion Documents And Transfer Instruments

Depending on the structure, you may need a bundle of completion documents, such as:

• Stock transfer forms (share purchase).
• Board minutes/resolutions (share purchase).
• Asset transfer schedules (asset purchase).
• Property assignment documents or licence to assign (if premises are transferring).
• Novation/assignment documents for key contracts.

When contracts need to move from the seller to you, a Deed Of Novation is often the cleanest way to transfer rights and obligations (but it usually requires the third party’s consent).

4) People, Premises, And Contracts: The “Hidden” Transfer Issues That Delay Completion

Many deals slow down because of issues that aren’t obvious from the outside. Here are the common bottlenecks to plan for early.

Employees And TUPE

If you’re doing an asset purchase and taking on staff, you may trigger the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE). In simple terms, TUPE can mean employees transfer to you automatically with their existing terms and continuity of service preserved.

That’s great for continuity - but it also means:

• You can inherit employment liabilities (for example, unpaid holiday, disputes, or contractual entitlements).
• You may have information and consultation obligations.
• Changing terms post-transfer can be legally risky if it’s because of the transfer.

Even where TUPE doesn’t apply (or you’re doing a share purchase), you’ll want a clear plan for post-completion staffing - and you’ll want your employment documents and policies ready to go.

Premises And Landlord Consent

If the business operates from leased premises, an asset sale usually requires landlord consent to assign the lease. Some leases also require:

• A rent deposit or guarantee from you as buyer.
• A deed of covenant.
• Evidence of financial standing.

If the premises can’t be transferred on acceptable terms, you may need to renegotiate price, structure, or even walk away.

Key Customer/Supplier Contracts

For an asset purchase, many contracts can’t be transferred without consent. For a share purchase, change-of-control clauses may allow termination or price changes.

Practical steps that help:

• Identify “must-have” contracts early and check transfer/termination clauses.
• Build third-party consents into the conditions of completion.
• Consider transitional services (for example, the seller supports you for 1–3 months).

5) Your Risk-Protection Toolkit: Warranties, Indemnities, Holdbacks, And Earn-Outs

When you buy a business, you’re buying information as much as assets. The seller knows more than you do - so your contract should balance that information gap.

Warranties

Warranties are statements the seller makes about the business (for example, that accounts are accurate, there’s no litigation, tax has been paid, key contracts are in force, and IP is owned by the seller).

If a warranty is untrue and you suffer loss, you may have a claim - but your remedy will depend on how the agreement is drafted, what was disclosed, and any limitation clauses.

Indemnities

Indemnities are usually used for specific known risks (for example, a threatened claim, a tax issue under investigation, or a disputed lease dilapidations position). If the risk materialises, the indemnity can make recovery clearer and more direct than a warranty claim.

Holdbacks And Retentions

A common SME-friendly protection is holding back part of the purchase price for a set period (say 3–12 months). This can help if you discover post-completion issues and need a practical way to recover funds.

Earn-Outs

An earn-out ties part of the price to future performance. It can work well when:

• The seller says the business is “about to take off”, but you don’t want to pay for growth that might not happen.
• The seller is staying on for a transition period and can influence performance.

Earn-outs need careful drafting, because disputes often arise over how profits are measured, what costs can be allocated, and what happens if you change the business model post-acquisition.

6) Key Takeaways

• Buying a business usually starts with deciding between an asset purchase and a share purchase - the risk profile and paperwork are very different.
• Solid due diligence is where you uncover hidden liabilities, non-transferable contracts, IP ownership gaps, and property issues before you commit.
• Your sale documentation should clearly define what’s included, how completion works, and what protections you have if the seller’s information turns out to be wrong.
• Watch for common transfer roadblocks, including TUPE (employees), landlord consent (premises), and third-party consents (key customer and supplier contracts).
• Use warranties, indemnities, retentions, and earn-outs as practical tools to manage risk and bridge valuation gaps.
• Don’t rely on generic templates for a business purchase - deal documents need to match the structure of the transaction and the realities of the business you’re buying.

Note: This guide is general information only and isn’t legal, tax or financial advice. For tax and accounting matters, you should speak to an accountant or tax adviser.

If you’re planning a purchase of a business and want help getting the deal structured properly and documented the right way, you can reach us at 08081347754 or team@sprintlaw.co.uk for a free, no-obligations chat.