GLOSSARY
Here are some of the terms often used during the process of buying and selling a business. Neither the list itself nor the explanations given are intended to be exhaustive nor are they intended as formal legal definitions.
Accounts
For the purposes of evaluating your company the Accounts are defined as the full financial statements, rather than the abbreviated accounts usually filed at Companies House.
Acquisition
The purchase by an individual, partnership or company of any of either the goodwill, assets or shares of another company.
Assets
The tangible and intangible property of the company. See below.
Book Value (or Net Book Value or Net Asset Value)
The value of a company's assets and liabilities, as recorded in the Balance Sheet.
Broker
The Business Broker (Business Transfer Agent) acts as a trusted adviser, providing a discreet and confidential service to a business owner(s) to sell that business. in the UK business brokers and transfer agents may be required to register with HMRC and comply with Money Laundering Regulations.
Business Asset Disposal Relief (BADR)
BADR is a way of reducing Capital Gains Tax on certain business sales and disposals. The effect of the relief is to reduce to 10% the tax on the first £1m of lifetime capital gains.
Buyer (Purchaser)
The company, partnership or individual who purchases the shares or assets of another company or business.
Cash Free/Debt Free
A limited company can often be sold on a cash free/debt free basis. In it's simplest form this is where the seller pays off all debts and removes surplus cash prior to sale. In practice there area number of variations to this approach in order to suit the circumstances.
Capital Gain
The profit from the sale of a business or of capital assets. The financial consideration received less the cost of ownership. Capital Gains Tax may apply, see Business Asset Disposal Relief above.
Company Sale
The sale of the shares of corporate entity (the limited company), as opposed to the sale of the Goodwill and Assets (see below).
Completion
The point at which a transaction is regarded as legally 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 defined in terms of time and geography).
Deferred Payment
A proportion of the total consideration that is held back for an agreed period of time, sometimes with conditions attached.
Disclosure Letter
A document prepared by the vendor prior to completion disclosing particular situations which qualify the Warranties given (see
below).
Disposal
The sale by an individual, partnership or company of any of either the goodwill, assets or shares of their company.
Due Diligence
A thorough 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 dependent upon certain criteria, for example future sales and/or profits, being met.
Entrepreneurs' Relief (now known as Business Asset Disposal Relief)
See above
Exclusivity
A period of time, typically 60 or 90 days, during which the vendor (and his agent) agree not to enter into discussions or provide information to other prospective buyers. This period is granted to allow the buyer and his advisers to carry out Due Diligence and/or to raise finance.
Exit Strategy or Exit Planning
The process by which an owner or owners plan to leave their business, whether through a business sale or sale to management, or even to liquidate and close the company.
Goodwill
An intangible asset representing the value of, e.g. the company's client base, its history, reputation and potential future earnings.
Goodwill & Asset Sale
The sale of the Tangible and Intangible Assets of a business. In contrast to a Share Sale, the buyer does not take on responsibility for any of the company's liabilities (other than staff under TUPE). The tax implications are also different. A Goodwill and Asset sale (sometimes referred to simply as an Asset Sale) also applies in the case of a business sale trading as a sole trader or partnership. Occasionally such a sale may also involve the refinance of certain assets e.g. vehicles or equipment, and the assignation of a premises lease.
Heads of Terms (or Heads of Agreement)
A non-binding written agreement reached by the seller and buyer. It provides the basis for further discussion and the drawing up of a legally secure Sale/Purchase Agreement.
Intangible Assets
Assets that cannot be physically touched, for example Goodwill, Domain Names and Intellectual Property (e.g. Designs, Patents, Copyright, Trade Marks).
Loan Notes
Notes given to the vendor as part payment. Often unsecured or secured by a second lien or charge on the assets of the company.
Management Buy In (MBI)
The purchase of a company by an external team of managers.
Management Buy Out (MBO)
The purchase of a company by part or all of the existing staff or management.
Sale & Purchase Agreement
The contract of sale known as the SPA. 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 and all issued share capital.
Tangible Assets
The physical assets of the business, which may include Property, Plant, Equipment, Furniture, Stock and Vehicles.
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.
Vendor
The owner(s) of the business to be sold.
Warranties
Undertaking(s) given by the vendor regarding the truth and accuracy of the information provided. Usually forming a part of the Contract or Sale and Purchase Agreement.
Here are some of the terms often used during the process of buying and selling a business. Neither the list itself nor the explanations given are intended to be exhaustive nor are they intended as formal legal definitions.
Accounts
For the purposes of evaluating your company the Accounts are defined as the full financial statements, rather than the abbreviated accounts usually filed at Companies House.
Acquisition
The purchase by an individual, partnership or company of any of either the goodwill, assets or shares of another company.
Assets
The tangible and intangible property of the company. See below.
Book Value (or Net Book Value or Net Asset Value)
The value of a company's assets and liabilities, as recorded in the Balance Sheet.
Broker
The Business Broker (Business Transfer Agent) acts as a trusted adviser, providing a discreet and confidential service to a business owner(s) to sell that business. in the UK business brokers and transfer agents may be required to register with HMRC and comply with Money Laundering Regulations.
Business Asset Disposal Relief (BADR)
BADR is a way of reducing Capital Gains Tax on certain business sales and disposals. The effect of the relief is to reduce to 10% the tax on the first £1m of lifetime capital gains.
Buyer (Purchaser)
The company, partnership or individual who purchases the shares or assets of another company or business.
Cash Free/Debt Free
A limited company can often be sold on a cash free/debt free basis. In it's simplest form this is where the seller pays off all debts and removes surplus cash prior to sale. In practice there area number of variations to this approach in order to suit the circumstances.
Capital Gain
The profit from the sale of a business or of capital assets. The financial consideration received less the cost of ownership. Capital Gains Tax may apply, see Business Asset Disposal Relief above.
Company Sale
The sale of the shares of corporate entity (the limited company), as opposed to the sale of the Goodwill and Assets (see below).
Completion
The point at which a transaction is regarded as legally 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 defined in terms of time and geography).
Deferred Payment
A proportion of the total consideration that is held back for an agreed period of time, sometimes with conditions attached.
Disclosure Letter
A document prepared by the vendor prior to completion disclosing particular situations which qualify the Warranties given (see
below).
Disposal
The sale by an individual, partnership or company of any of either the goodwill, assets or shares of their company.
Due Diligence
A thorough 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 dependent upon certain criteria, for example future sales and/or profits, being met.
Entrepreneurs' Relief (now known as Business Asset Disposal Relief)
See above
Exclusivity
A period of time, typically 60 or 90 days, during which the vendor (and his agent) agree not to enter into discussions or provide information to other prospective buyers. This period is granted to allow the buyer and his advisers to carry out Due Diligence and/or to raise finance.
Exit Strategy or Exit Planning
The process by which an owner or owners plan to leave their business, whether through a business sale or sale to management, or even to liquidate and close the company.
Goodwill
An intangible asset representing the value of, e.g. the company's client base, its history, reputation and potential future earnings.
Goodwill & Asset Sale
The sale of the Tangible and Intangible Assets of a business. In contrast to a Share Sale, the buyer does not take on responsibility for any of the company's liabilities (other than staff under TUPE). The tax implications are also different. A Goodwill and Asset sale (sometimes referred to simply as an Asset Sale) also applies in the case of a business sale trading as a sole trader or partnership. Occasionally such a sale may also involve the refinance of certain assets e.g. vehicles or equipment, and the assignation of a premises lease.
Heads of Terms (or Heads of Agreement)
A non-binding written agreement reached by the seller and buyer. It provides the basis for further discussion and the drawing up of a legally secure Sale/Purchase Agreement.
Intangible Assets
Assets that cannot be physically touched, for example Goodwill, Domain Names and Intellectual Property (e.g. Designs, Patents, Copyright, Trade Marks).
Loan Notes
Notes given to the vendor as part payment. Often unsecured or secured by a second lien or charge on the assets of the company.
Management Buy In (MBI)
The purchase of a company by an external team of managers.
Management Buy Out (MBO)
The purchase of a company by part or all of the existing staff or management.
Sale & Purchase Agreement
The contract of sale known as the SPA. 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 and all issued share capital.
Tangible Assets
The physical assets of the business, which may include Property, Plant, Equipment, Furniture, Stock and Vehicles.
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.
Vendor
The owner(s) of the business to be sold.
Warranties
Undertaking(s) given by the vendor regarding the truth and accuracy of the information provided. Usually forming a part of the Contract or Sale and Purchase Agreement.