Buying a Business in the UK: A Legal Step-by-Step Guide

Buying a business in the UK is done in one of two legal forms: you either buy the shares in the company that owns the business, or you buy the assets and trade out of the company and leave the company behind. That single choice determines what liabilities you inherit, what consents you need, how the employees transfer, how the purchase is taxed and which agreement you sign, and it should be settled before heads of terms are drafted rather than argued over at the drafting stage.

This guide sets out the whole legal process of acquiring an SME or owner-managed business in England and Wales, from first approach to post-completion filings. We act for buyers and sellers on these deals, so the points below reflect where transactions genuinely stall rather than a tidy theoretical sequence. Where a step deserves its own treatment, we have linked to the detailed guide on that point.

If you are on the other side of the table, our companion guide on selling a business in the UK covers the same transaction from the seller’s perspective.

The acquisition process, end to end

A typical SME acquisition runs through nine legal stages. The timings below are what we see on straightforward owner-managed deals with a single corporate seller, no regulated activity and no external debt funding. Each additional complication, a regulatory licence, a bank, a property, a pension scheme, a foreign shareholder, pushes the total out.

Most SME acquisitions complete three to six months after heads of terms are signed. Deals that need a regulator’s approval, a new lease or a bank facility routinely take longer, and the lead time on those consents is almost always underestimated at the heads of terms stage.

Share purchase or asset purchase: the decision that shapes the deal

In a share purchase you buy the shares in the target company. The company carries on exactly as before, keeping its contracts, employees, licences, assets and, critically, every liability it has ever incurred, including liabilities nobody has discovered yet. In an asset purchase you buy identified assets and the goodwill from the company, and the selling company retains its own history, debts and most of its liabilities.

Buyers generally prefer an asset purchase because it allows them to leave unwanted liabilities behind. Sellers generally prefer a share sale because it is a clean exit and is usually more tax efficient for them. Which one you end up with is therefore a negotiation, not a technical answer, and it is frequently reflected in the price.

There is no universally right answer, and the choice interacts with funding, tax and the seller’s own exit plan. We have set the comparison out in full, including the tax and TUPE consequences on each side, in our guide to share sale versus asset sale. If the deal is proceeding as an asset purchase, our note on asset purchase agreements explains how the asset schedules and transfer mechanics work.

Approaching a target and the first documents

Confidentiality comes before anything else

Nothing meaningful should be disclosed before a non-disclosure agreement is signed. A seller releasing management accounts, customer lists and staff details to a prospective buyer with no NDA in place has no practical remedy if the deal collapses and the information is used. From the buyer’s side, a well-drafted NDA should be mutual, should permit disclosure to your funders and advisers, and should carry a non-solicitation provision covering the target’s staff and customers so that an aborted deal does not become a recruitment exercise.

Watch for NDAs that bar you from buying any competing business for a period. Sellers sometimes slip these in, and if you are an active acquirer running several processes at once, that single clause can be more commercially damaging than anything else in the document.

Heads of terms

Heads of terms, also called a letter of intent or a memorandum of understanding, record the commercial shape of the deal before the lawyers start drafting. They are usually expressed to be non-binding except for a handful of clauses, typically confidentiality, exclusivity, costs and governing law, which are stated to be binding.

Two things matter here. First, “subject to contract” is not magic wording, and heads of terms that are detailed enough and acted on can create obligations the parties did not intend. Mark clearly which clauses bind and which do not. Second, heads of terms set the negotiating anchor. Anything you leave vague, the working capital target, what happens to the seller’s director loan account, whether the price is cash free and debt free, will be negotiated later from a weaker position. Our detailed guide to heads of terms for a business sale covers what to pin down and what to leave open.

Exclusivity

Exclusivity, or a lock-out agreement, stops the seller negotiating with anyone else for an agreed period. It is the one protection a buyer genuinely needs before spending money on due diligence, and English law will enforce a properly drafted negative obligation not to negotiate with third parties for a defined period.

Keep the period realistic. Six to ten weeks is common on an SME deal. Too short and you will be renegotiating it mid-diligence with no leverage. Too long and a seller will resist, or will insist on a break fee. We have set out how these clauses are drafted and enforced in our guide to exclusivity agreements when buying a business.

Legal due diligence: what you are actually looking for

Due diligence is not an audit of whether the business is a good buy. It is an exercise in finding the things that would change the price, change the structure, require an indemnity, or stop the deal entirely. Approached properly it produces four outputs: issues that kill the deal, issues that reduce the price, issues that require a specific indemnity or a retention, and issues you simply need to know about before you take over.

The core areas on an SME acquisition are:

• Corporate. Does the seller actually own the shares being sold? Is the share history clean, are the statutory registers complete, has the PSC register been maintained, and are there options, convertible instruments or shareholder agreements that give someone else a right to the shares?
• Contracts. Change of control clauses in customer, supplier and franchise agreements are the single most common reason a share purchase needs third-party consent. Check termination rights, exclusivity, minimum volume commitments and any contract that would let a major customer walk on completion.
• Employment. Contracts, notice periods, bonus and commission schemes, restrictive covenants on key staff, holiday accrual, pension arrangements, employment status of anyone engaged as a contractor, and any live or threatened tribunal claim.
• Property. Title, lease terms, break clauses, rent review dates, dilapidations exposure, alienation provisions and whether the landlord’s consent to a change of control or an assignment is required.
• Intellectual property. Whether the company actually owns its brand, software and designs, or whether they sit with a founder personally or with an external developer who never assigned them. This is remarkably common in owner-managed businesses.
• Data protection. Lawful basis for the customer database you are paying for, records of processing, processor contracts, and any reportable personal data breach history.
• Regulatory and licensing. Whether the business holds any licence or registration, whether that licence transfers, and what the regulator requires on a change of control.
• Litigation and disputes. Current, threatened and recently settled, plus the insurance position on each.

Due diligence runs differently on a share purchase and an asset purchase. On a share purchase you are inheriting everything, so the review is historic and wide. On an asset purchase you are buying a defined list, so the focus narrows to whether each asset is owned, transferable and free of security. Our guide to legal due diligence when buying a business sets out the full questionnaire and how to read the replies.

One practical point buyers often miss: the diligence report and the warranty schedule should be written together. There is no value in discovering a problem in diligence and then signing an agreement whose warranties do not cover it. Every material issue found should end up either priced in, indemnified, made a condition of completion, or expressly accepted.

The purchase agreement

On a share purchase the main document is the share purchase agreement, almost always with a separate tax covenant or a tax schedule under which the seller agrees to meet pre-completion tax liabilities. It will deal with the shares being sold, the price and how it is paid, conditions to completion, what happens at completion, the warranties, the limits on the seller’s liability, restrictive covenants on the seller, and confidentiality and announcements.

On an asset purchase the main document is the asset purchase agreement, which performs the same job but must also identify each asset being transferred, allocate the price between asset classes for tax purposes, deal with the transfer of contracts, handle the TUPE transfer of employees, and apportion liabilities as at completion. Asset purchase agreements are usually longer and carry more schedules than share purchase agreements for the same deal value.

Two provisions deserve specific attention from a buyer. The restrictive covenants given by the seller, non-compete, non-solicitation of customers and non-poaching of staff, are what stop the seller taking the goodwill you have just paid for and rebuilding it next door. Covenants given by a seller on a business sale are judged more generously by the courts than covenants in an employment contract, but they still have to be no wider than reasonably necessary to protect the goodwill acquired. The second is the completion mechanics: who delivers what, in what order, and what happens if a condition is not satisfied by the long stop date.

We explain the structure of the main agreement clause by clause in what is a share purchase agreement.

Warranties, indemnities and the disclosure letter

Warranties are statements of fact about the business given by the seller. If a warranty turns out to be untrue, the buyer has a claim for breach of contract, and the measure of damages is generally the difference between the value of what was warranted and the value of what was actually acquired. Indemnities are different: they are a promise to reimburse the buyer pound for pound for a specified liability, usually something the diligence has already identified, such as a known tax exposure or a live dispute.

The disclosure letter is where the seller qualifies the warranties. Anything properly disclosed cannot later be the subject of a warranty claim, which means the disclosure letter is as commercially important as the warranty schedule itself. Buyers should resist general sweeper disclosures, for instance everything that would be revealed by a Companies House search or anything in the data room, and insist on specific disclosure against identified warranties.

Expect the seller to negotiate limits: a financial cap, usually a percentage of the price, a de minimis for individual claims, a basket threshold before any claim can be brought, and time limits, commonly 12 to 24 months for general warranties and longer for tax. Our guides to warranties and indemnities in a business sale and the disclosure letter cover how these are negotiated in practice.

How the price is actually paid

The headline number in heads of terms is rarely the sum that leaves your account on completion. The price mechanism determines who carries the risk of the business’s performance between the last set of accounts and completion, and it is usually worth more in negotiation than a small movement in the headline figure.

Earn-outs are the most commonly misunderstood. They look like a neat way to bridge a valuation gap, and they are, but they also hand the seller a continuing commercial interest in how you run the business, and they routinely produce arguments about accounting policies, allocation of group overheads and whether the buyer has deliberately depressed the earn-out. If you are using one, the drafting on how the earn-out accounts are prepared matters more than the percentage.

Each mechanism is covered in detail in our guides to completion accounts versus locked box, earn-outs and deferred consideration.

Funding the purchase

Most SME acquisitions are funded by a mix of buyer equity, bank or asset-based debt, seller deferred consideration and sometimes an earn-out. From a legal perspective, external debt adds a parallel workstream and usually extends the timetable, because the lender will want its own conditions satisfied before it releases funds.

Expect the lender to require a facility agreement, a debenture granting fixed and floating charges over the target’s assets, cross guarantees from group companies, often personal guarantees from the buyer’s directors, and a direct right to review your due diligence report. Lenders commonly ask for reliance on the legal and financial diligence, which has to be negotiated with your advisers at the outset rather than requested three days before drawdown.

If the target company itself is giving security or guarantees to support the acquisition of its own shares, the financial assistance rules under the Companies Act 2006 need to be considered. Private companies are not generally prohibited from giving financial assistance, but public companies are, and a target that is or has been a public company needs careful handling.

Where the buyer is the existing management team, the structure is a management buy-out, which carries its own conflict issues because the buyers are also directors of the target and owe duties to it. We deal with that structure through our management buy-ins and buy-outs practice.

Employees: TUPE and two recent changes buyers should price in

On a share purchase, nothing happens to the employees as a matter of law. Their employer, the company, is unchanged. Only the ownership of the company has moved, so there is no TUPE transfer and no statutory consultation duty, although in practice a sensible buyer still communicates with the workforce.

On an asset purchase, the Transfer of Undertakings (Protection of Employment) Regulations 2006 usually apply. Employees assigned to the transferring business move automatically to the buyer on their existing terms, with continuity of employment preserved, and their contracts transfer as if originally made with the buyer. You cannot contract out of this, and you cannot pick and choose which employees come across.

Three points consistently catch buyers out:

• Dismissals connected with the transfer are automatically unfair under regulation 7, unless the sole or principal reason is an economic, technical or organisational reason entailing changes in the workforce. A buyer who plans redundancies on day one is taking a real risk.
• Both seller and buyer have information and consultation duties under regulation 13, long enough before the transfer for consultation to take place. Since 1 January 2024, an employer can inform and consult affected employees directly, rather than through elected representatives, where there are no existing representatives and either the employer has fewer than 50 employees or there are fewer than 10 transferring employees. That helps smaller deals, but it does not remove the duty.
• Liabilities transfer with the people. Unpaid wages, holiday pay, outstanding grievances and existing discrimination claims come across to the buyer. These belong in the indemnity schedule, not in a hope that they will not surface.

Two changes made by the Employment Rights Act 2025 materially increase what it costs a buyer to get the post-completion workforce plan wrong, and neither appears in most of the acquisition guidance currently online.

From 6 April 2026, the maximum protective award for failure to consult on collective redundancies doubled from 90 days’ pay to 180 days’ pay per affected employee, through the amendment to section 189(4) of the Trade Union and Labour Relations (Consolidation) Act 1992. A buyer restructuring 20 or more employees at one establishment within 90 days and getting the consultation wrong is now exposed to twice the award it would have faced previously.

From 1 January 2027, the qualifying period for ordinary unfair dismissal falls to six months, and the compensatory award for unfair dismissal is uncapped. Buyers who have historically relied on a two-year qualifying period to manage inherited staff will need to plan differently, and the risk profile of a post-completion restructure changes considerably. Both dates come from the government’s published implementation timetable and remain subject to parliamentary process.

Our detailed note on TUPE when buying or selling a business covers the mechanics, and our employment team advises both buyers and sellers on transfer and consultation planning.

Premises, leases and landlord consent

Where the business trades from leasehold premises, the property is frequently the item that sets the completion date.

On an asset purchase the lease must be assigned to the buyer, and almost every commercial lease requires the landlord’s consent to assignment. Where the lease says consent is not to be unreasonably withheld, the Landlord and Tenant Act 1988 imposes a duty on the landlord, once a written application is served, to give consent within a reasonable time except where it is reasonable not to, and to serve written notice of the decision setting out any conditions or the reasons for refusal. If the landlord’s reasonableness is later challenged, the burden of proof is on the landlord, not the tenant. That is a genuinely useful protection, but a reasonable time is not a fixed period, and landlords routinely take six to twelve weeks on a straightforward application.

Expect the landlord to ask for references, accounts, a rent deposit, and on a lease granted on or after 1 January 1996, an authorised guarantee agreement from the outgoing tenant. Where the buyer is a newly incorporated special purpose vehicle with no trading history, expect a parent company guarantee or personal guarantees as a condition of consent.

On a share purchase the lease stays with the company and no assignment is needed, but many commercial leases contain a change of control provision requiring the landlord’s consent or at least notification when the tenant company changes hands. Check the alienation clause early. Discovering it two weeks before completion is a common cause of delay. Our commercial property team handles the property element of acquisitions alongside the corporate workstream, and our note on commercial lease red flags covers the clauses that cause the most trouble.

If the business owns its freehold, the property transfers with the company on a share purchase and no SDLT arises on the property itself. On an asset purchase the freehold is transferred separately and SDLT is payable, with the non-residential threshold starting at £150,000. The SDLT return must be filed and the tax paid within 14 days of completion.

Consents and clearances: the part that sets your timetable

This is the section most acquisition guides leave out, and it is the one that most often determines whether a deal completes when the parties hoped.

National Security and Investment Act 2021

This catches far more SME transactions than buyers expect, because it has no turnover threshold at all. If the target carries on a specified activity in any of the 17 sensitive areas of the economy, notification to the government is mandatory and the acquisition cannot complete until approval is given.

The 17 areas are advanced materials, advanced robotics, artificial intelligence, civil nuclear, communications, computing hardware, critical suppliers to government, cryptographic authentication, data infrastructure, defence, energy, military and dual-use, quantum technologies, satellite and space technologies, suppliers to the emergency services, synthetic biology, and transport. A small software company doing work for a government department, or a specialist engineering business supplying defence primes, can sit squarely inside this regime.

Under section 8 of the Act, control is gained where a person’s shareholding or voting rights cross 25%, 50% or 75%. Section 13 is blunt about the consequence of getting it wrong: a notifiable acquisition completed without the approval of the Secretary of State is void. Not voidable, void. Completing without clearance does not give you a defective acquisition that can be tidied up later, it gives you no acquisition at all.

Merger control

UK merger notification to the Competition and Markets Authority is voluntary, not mandatory, but the CMA can still investigate a completed deal. The thresholds in section 23 of the Enterprise Act 2002 were changed with effect from 1 January 2025. A relevant merger situation now arises where the UK turnover of the business being acquired exceeds £100 million, or where the share of supply test is met, which requires the parties together to supply or acquire at least 25% of goods or services of a particular description in the UK or a substantial part of it, and at least one of the enterprises to have UK turnover exceeding £10 million.

Most SME deals fall well outside this. The exception worth checking is a buyer consolidating a niche market, where the 25% share of supply test can be met on a narrow product or geographic description even at modest turnover.

Contractual and third party consents

Change of control clauses in key customer contracts, franchise agreements, finance agreements and leases are the commonest consents needed on a share purchase, and on an asset purchase every material contract needs assigning or novating. Identify them in diligence, approach the counterparties with the seller’s agreement, and build the time into the timetable. A single customer representing 30% of revenue with a change of control termination right is a deal issue, not an administrative one.

Buying a regulated business

If the target carries on a regulated activity, the regulator’s position usually governs the completion date, and in many cases the registration simply does not transfer with the business.

For health and social care services in England, section 10 of the Health and Social Care Act 2008 makes it a criminal offence to carry on a regulated activity without being registered with the Care Quality Commission in respect of that activity. On an asset purchase the buyer needs its own registration in place before it starts providing the service, and CQC registration applications take time. On a share purchase the company’s existing registration continues, but changes to the registered manager, the nominated individual and the directors all have to be notified. Our checklist for buying a care home works through this, alongside our care home practice.

Community pharmacy carries two separate layers: registration of the premises with the General Pharmaceutical Council, and inclusion in the NHS pharmaceutical list, which is what allows the pharmacy to dispense NHS prescriptions and is the commercial heart of the business. A change of ownership does not automatically carry the NHS listing across, and this is the point on which pharmacy acquisitions most often go wrong. Our guide to buying a pharmacy sets out the sequence, and we act for buyers through our pharmacy practice.

Dental and GP practices add NHS contract mechanics on top of CQC registration, and the contractual route by which NHS income transfers is often the determining factor in how the deal has to be structured. We have covered that in detail in our guide on how to buy a dental practice and our note on the CQC application process when buying or selling a dental practice.

The general rule holds across regulated sectors: assume the licence does not transfer on an asset purchase until you have confirmed otherwise, and assume the regulator needs notice on a share purchase even where the registration survives.

Completion and the first 30 days

On most SME deals exchange and completion happen at the same time. Where a consent or clearance has to be obtained first, the parties exchange on a conditional agreement and complete once the condition is satisfied, with a long stop date after which either party can walk away.

At completion on a share purchase you should expect to receive stock transfer forms and share certificates, resignations from the outgoing directors and company secretary, board minutes approving the transfer and the new appointments, the statutory registers and company books, releases of any security, and the disclosure letter in final form. On an asset purchase, add transfers or assignments for each asset class, the property transfer or licence to assign, and the TUPE employee information.

The post-completion filings are where buyers most often drift, and several carry hard deadlines:

• Stamp duty on the share transfer. Charged at 0.5% of the consideration, rounded up to the nearest £5, where the consideration exceeds £1,000. The stock transfer form must be sent to HMRC and the duty paid within 30 days of the form being signed and dated. The transfer should not be registered in the company’s register of members until the form has been stamped.
• SDLT on any land transferred. The return must be filed and the tax paid within 14 days of completion, with the non-residential threshold starting at £150,000.
• Companies House filings. Director and secretary appointments and terminations, any change of registered office, and updates to the register of people with significant control.
• Identity verification. Since 18 November 2025, identity verification with Companies House has been a legal requirement for directors and people with significant control. A buyer appointing new directors on completion, or becoming a PSC of the target, needs to have this in hand rather than discovering it at filing stage. Verification can be done directly through GOV.UK One Login or through an authorised corporate service provider such as a solicitor or accountant.
• Statutory registers and share certificates. Update the register of members, issue new certificates, and keep the registers properly maintained from day one.
• Operational handover. Bank mandates, insurance, VAT and PAYE arrangements, supplier and customer notifications, domain names and software licences, and the transfer of any trade marks at the Intellectual Property Office.

Tax treatment is not a legal question alone, and the structure that is most efficient for the seller is rarely the one that is most efficient for the buyer. Confirm your own position with your accountant or tax adviser before the structure is fixed in heads of terms, not after.

Where SME acquisitions most often go wrong

• Agreeing heads of terms before the share or asset decision is settled, then reopening price when the structure changes.
• Starting due diligence without exclusivity, and finding the seller has used your offer to run an auction.
• Leaving landlord consent, regulatory approval or a change of control consent until the final fortnight.
• Accepting broad general disclosure, which hollows out the warranties you negotiated.
• Agreeing an earn-out without agreeing in writing how the earn-out accounts will be prepared.
• Taking seller warranties from an individual with no assets and no retention, leaving no practical route to recovery.
• Assuming intellectual property sits in the company when it was created by a founder or an external developer who never assigned it.
• Planning redundancies for the week after completion without TUPE and collective consultation advice.
• Overlooking the National Security and Investment Act because the target is small, when the Act has no turnover threshold.
• Missing the 30 day stamp duty deadline, which delays registration of the shares and can create penalties and interest.

Talking to us about your acquisition

A well-run acquisition is mostly a question of sequencing: deciding the structure early, getting exclusivity before you spend money, identifying the consents that control the timetable in the first fortnight of diligence, and making sure what you find in diligence is reflected in the agreement rather than noted and forgotten. The legal risk on these deals is rarely in the headline price. It is in the liabilities you did not know you were assuming and the consents nobody chased.

We act for buyers and sellers on business acquisitions across England and Wales, including management teams, trade buyers and first-time acquirers of owner-managed businesses, with corporate, commercial property, employment and regulatory advice under one roof. If you are considering an acquisition, or you have heads of terms in front of you and want them reviewed before you sign, speak to our buying a business team, or see our wider mergers and acquisitions practice. Call us on +44 207 566 1188 or email info@gurvelegal.com and we will tell you plainly what the deal needs and how long it is likely to take.