The purpose of this guide is to provide initial guidance and raise the main issues that should be considered when purchasing a business, business activity or company. The issues are presented in general terms. Our recommendation is not to make a transaction for the purchase of a business or a company without receiving specific professional advice, in which the unique circumstances of the transaction will be examined.
2. The Main Issues to Consider When Buying a Business:
In the early stages of making the investment, the following issues should be addressed:
- Examination of the feasibility of the transaction: comprehensive examination of the business and the economic feasibility of its acquisition and business success.
- Consideration of the transaction: both the amount of the consideration and the manner in which it is paid must be examined (including adjustment and compensation mechanisms, if necessary). In appropriate cases, a valuation should be considered according to an accepted methodology that is appropriate for the type of activity.
- Insofar as the business is incorporated as a company, it is necessary to examine whether to carry out a share transaction (purchase of the Company’s shares from the existing shareholders) or a transaction of assets and activity (purchase of the company’s assets and operations from within the company itself). This issue has very significant tax implications, both in relation to the sellers and in relation to the purchasers. This issue also has significant legal and accounting implications.
3. Information that is Recommended to be Collected Before Making a Decision about Purchasing a Business:
- Basic business information: how long has it been open, who is the current owner, and whether they have been different owners in the past.
- What is the status of fixed assets and inventory in the business?
- Receipt of profit and loss reports from the last two years, including estimated reports as of the date of the negotiations.
- Data reported to the tax authorities: details of VAT reports, forms 102, annual reports.
- In appropriate cases, and especially insofar as a company or shares are acquired in the company, it is recommended to conduct a comprehensive due diligence examination, both an accounting-economic due diligence test and a legal due diligence examination. The due diligence process will examine the following issues: status of suppliers, customer status, liabilities towards employees, lawsuits, institutions, contracts.
- In appropriate cases, it is possible to approach research companies and obtain information from them regarding both the acquired business and its field of activity.
- Checking the existence of licenses required for the activity of the business.
4. Actions to be Taken After Purchasing a Business:
After completion of the purchase, the various authorities must be notified of the changes made (the Registrar of Companies, the Registrar of Partnerships, VAT, Income Tax, National Insurance) and, if necessary, to open files in the tax authorities. In addition, in appropriate cases, a renewal of a business license is required and obtaining appropriate permits. It is important to carry out these actions as close as possible to the closing date of the transaction.
5. Additional Information:
- Read the comparison guide between an independent and limited companies
- Read the guide to starting a new business
- Click here for more information and to arrange a consultation meeting to open a new business.