Buying or Transferring a Business in the UK: Legal Framework, Key Clauses, and Practical Examples

By Natalie Popova, Legal Consultant | Express Law Solutions

Disclaimer: This article is for general information only and does not constitute legal advice. For specific guidance, contact Express Law Solutions.

Transferring ownership

Transferring ownership of a business in the United Kingdom is a process that extends far beyond agreeing on a price and shaking hands. It is a legal transaction governed by a combination of corporate law, contract law, tax law, property law, and employment law. Each element brings obligations, risks, and protections which, if neglected, can expose both buyer and seller to financial or even criminal liability.

Whether you are purchasing a small family café or acquiring the shares of a multi-branch company, a structured legal approach is essential. This article provides a detailed guide to the main stages of a business transfer in the UK, with references to statutory provisions, case law, and real-life examples.

Structuring the Transaction

The first and most strategic decision is whether the acquisition will take place through a share purchase or an asset purchase.

Share Purchase

Definition: Buyer acquires all or a majority of the company’s issued shares.
Effect: The company continues to exist as the same legal entity, with all assets, contracts, and liabilities intact.
Relevant Legislation: Companies Act 2006; Stamp Act 1891 for Stamp Duty.
Taxation: Stamp Duty of 0.5% of consideration applies to the transfer of shares.

Practical Implication: The buyer steps into the shoes of the seller, inheriting both value and hidden liabilities. For example, in Re F2G Ltd (2021), the purchaser of a software company discovered post-completion that the target had not properly protected its intellectual property rights, which were transferred as part of the shareholding.

Asset Purchase

Definition: Buyer selectively acquires specified assets (property, stock, goodwill, intellectual property, etc.).
Effect: The corporate shell remains with the seller, who retains liabilities unless expressly transferred.
Relevant Legislation: Sale of Goods Act 1979, Law of Property Act 1925.
Taxation: VAT generally payable unless treated as a Transfer of a Going Concern (TOGC) under HMRC VAT Notice 700/9.

Example: A coffee shop buyer in Leeds purchased assets (equipment, goodwill, name) without inheriting debts, thereby ring-fencing risk.

Key Difference: Share purchase = “buying the company with all its baggage.” Asset purchase = “cherry-picking what you want.”

Due Diligence: The Foundation of a Safe Purchase

Due diligence is the investigative process that enables the buyer to identify risks and confirm the true value of the business.

Core Areas:

Corporate Records – review Companies House filings, shareholders’ agreements, charges over assets (Companies Act 2006).
Financial & Tax Compliance – confirm corporation tax, VAT, PAYE are up-to-date (Taxes Management Act 1970).
Employment Contracts – check obligations under Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE).
Property Leases – scrutinise terms under the Landlord and Tenant Act 1954.
Litigation & Regulatory Issues – search ongoing claims, tribunal cases, and regulatory investigations.

Case Example: A buyer of a logistics company failed to perform tax due diligence and inherited £100,000 VAT debt under HMRC investigation. Had warranties and tax indemnities been sought, liability could have been shifted back to the seller.

Key Legal Documents

Share Purchase Agreement (SPA) / Asset Purchase Agreement (APA)
- Defines purchase price, warranties, indemnities, restrictive covenants.
- Governed by general contract principles (Contracts (Rights of Third Parties) Act 1999 may also be relevant).
Disclosure Letter
- Protects the seller by disclosing known risks (lawsuits, tax enquiries).
TUPE Compliance
- Employees automatically transfer under TUPE 2006. Redundancies directly tied to the transfer may be unfair dismissals (Litster v Forth Dry Dock [1990]).
Lease Assignment Agreement
- Required if premises are leased. Landlord consent is often mandatory under Landlord and Tenant Act 1954.

Case Example: In Manchester, a retail buyer’s completion was delayed two months because the landlord demanded a personal guarantee before consenting to lease assignment.

Taxation and Regulatory Compliance

Stamp Duty – 0.5% on share purchase consideration.
VAT – applicable on asset transfers unless TOGC exemption applies (HMRC Notice 700/9).
Capital Gains Tax (CGT) – payable by seller on share disposal (Taxation of Chargeable Gains Act 1992).
Anti-Money Laundering – solicitors and agents must conduct checks under Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.

Example: An IT consultancy was transferred as a TOGC, saving nearly £50,000 in VAT for the buyer.

Clauses That Protect the Buyer

Warranties – contractual promises that facts (accounts, contracts, compliance) are true.
Indemnities – specific commitments to reimburse buyer for identified risks (e.g. ongoing tax dispute).
Restrictive Covenants – prevent seller from setting up a competing business.
Completion Accounts – ensure the business has required working capital at transfer.
Escrow Arrangements – purchase money retained by third party until conditions are satisfied.

Buyer’s Step-by-Step Checklist

Choose share vs asset purchase.
Commission legal, financial, and tax due diligence.
Review staff contracts and TUPE implications.
Negotiate warranties, indemnities, covenants.
Secure landlord/regulatory approvals.
Agree SPA/APA, Disclosure Letter, ancillary agreements.
Register share transfer with Companies House (if relevant).
File returns with HMRC.

Share Purchase Process Flow

Preparation

Identify target company.
NDA executed.
Heads of terms.

Due Diligence

Financial, legal, tax reviews.
Risk mapping.

SPA Drafting

Price, warranties, indemnities.
Tax covenants.
Escrow clauses.

Signing & Completion

Execute Share Transfer Form (Stock Transfer Act 1963).
Payment and document delivery.
Update Companies House.

Post-Completion

Release escrow.
Transition clients and accounts.
Address contingent liabilities.

Real-Life Example: Beauty Salon Transfer

In Birmingham, a buyer acquired a nail salon via share purchase. The seller failed to disclose an employee tribunal claim. Post-completion, the buyer was liable for £20,000 compensation under TUPE.

Lesson: Always secure warranties on employment disputes and search tribunal records during due diligence.

Cross-Border Considerations in Business Transfers

When the buyer, seller, or assets are located outside the United Kingdom, additional rules apply. These transactions require compliance not only with domestic UK law but also with international trade and tax regulations.

Regulatory Approval and Competition Law

Competition and Markets Authority (CMA) may intervene in cross-border deals if the merger substantially lessens competition in the UK (Enterprise Act 2002).
Example: In JD Sports / Footasylum (2020), the CMA scrutinised whether cross-border ownership distorted competition in the UK retail market.

Foreign Direct Investment (FDI) Screening

Under the National Security and Investment Act 2021, the UK government can block or impose conditions on foreign acquisitions in sensitive sectors (e.g. defence, AI, telecoms).
Buyers must submit notifications if the transaction falls into one of the 17 “sensitive” sectors.

Importing Assets and Goods

Businesses purchasing trading assets abroad (e.g. organic food, textiles, electronics) must comply with UK import regulations.
Organic Products: Imports from outside the UK require:
- Certificate of Inspection (COI) via TRACES NT.
- Approval from DEFRA.
- Certification by a recognised UK organic control body (e.g. Soil Association).
- Relevant law: Organic Products Regulations 2020 (SI 2020/166).

Case Example: A UK buyer acquiring an Italian organic wine brand could not market the wine as “organic” in the UK until DEFRA validated the COI and Soil Association confirmed equivalence certification.

Customs Duties and VAT on Imports

Import VAT payable at UK border unless postponed VAT accounting is used (Taxation (Cross-border Trade) Act 2018).
Customs duty depends on the UK Global Tariff schedule.
Non-compliance risks seizure of goods and HMRC penalties.

Double Taxation Relief

Buyers should check if a Double Taxation Agreement (DTA) applies between the UK and the seller’s jurisdiction. This avoids paying tax twice on the same profit.
Example: UK–US DTA allocates taxing rights on business profits, reducing exposure for transatlantic acquisitions.

Practical Steps for Cross-Border Buyers

Confirm whether the deal triggers CMA or National Security and Investment Act notifications.
If buying imported assets (e.g. stock, raw materials), secure necessary DEFRA or sectoral approvals.
Verify certification and labelling requirements for food, pharmaceuticals, or organic products.
Arrange for customs clearance and import VAT compliance.
Consult the relevant DTA to mitigate double taxation exposure.
Ensure all agreements are governed by English law and contain jurisdiction clauses.

Key Takeaway: Cross-border acquisitions in the UK require additional layers of compliance from CMA review and DEFRA approvals to customs duties and DTAs. Missing any of these steps can delay completion, increase costs, or even invalidate the deal.

Conclusion

Acquiring a business in the UK is not merely a financial transaction but a complex legal process that requires the careful coordination of corporate, employment, property, tax, and regulatory law. Buyers and sellers alike must navigate a framework shaped by statutes such as the Companies Act 2006, TUPE Regulations 2006, and the Landlord and Tenant Act 1954, while also ensuring compliance with tax obligations under HMRC guidance and the Value Added Tax Act 1994.

The success of a transaction often hinges not only on the negotiation of the purchase price but also on the allocation of risks and liabilities through mechanisms such as warranties, indemnities, restrictive covenants, and escrow arrangements. These legal tools provide certainty and protection, ensuring that the buyer does not inherit unexpected debts, unresolved litigation, or regulatory breaches that could otherwise undermine the value of the investment.

Equally, the seller benefits from clearly defined disclosure obligations and properly structured agreements that limit future exposure. Case law has repeatedly shown that inadequate due diligence or poorly drafted contracts can result in protracted disputes, unexpected tax liabilities, or even litigation years after completion.

In an environment where HMRC is increasingly proactive, landlords are protective of their rights, and employment protections are strongly enforced, legal diligence is indispensable. No two transactions are alike, and the nuances of each deal whether it involves a family-run café, a high-growth tech start-up, or a regional logistics company must be reflected in the drafting of the Share Purchase Agreement (SPA) or Asset Purchase Agreement (APA).

Practical Tip: Think of legal fees not as a burden but as an investment in risk management. Just as insurance protects against unforeseen events, a carefully negotiated SPA or APA, supported by tailored warranties and indemnities, safeguards your financial future. With proper preparation, transparency, and legal oversight, acquiring a business in the UK can be both a secure and strategically rewarding venture.

Key Legal Sources and References

Companies Act 2006 – Governs the formation, management, and transfer of shares in UK companies.
Sale of Goods Act 1979 – Regulates contracts for the sale of goods, relevant in asset purchase transactions.
Law of Property Act 1925 – Covers property and leasehold transfers.
Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) – Protects employees’ rights during business transfers.
Landlord and Tenant Act 1954 – Provides rules for business lease renewals and landlord consent in assignments.
Stamp Duty Reserve Tax (SDRT) – Applicable on share transfers (Finance Act 1986, Part IV).
Value Added Tax Act 1994 – Governs VAT, including rules on Transfer of a Going Concern (TOGC).
Capital Gains Tax (Taxation of Chargeable Gains Act 1992) – Relevant for sellers on business disposals.
Anti-Money Laundering Regulations 2017 – Imposes obligations on lawyers, accountants, and businesses to verify clients and prevent money laundering.
Employment Rights Act 1996 – Protects employees, including redundancy rights in transfers.
HMRC Guidance – On VAT, TOGC, stamp duty, and reporting obligations.
Case Law Examples – Secretary of State for Trade and Industry v Bottrill [1999] – Shareholder responsibilities. Spence v Intype Libra Ltd [2009] – TUPE redundancy protections.

Disclosure / Legal Notice:

All names and identifying details in the following case studies have been changed to protect client confidentiality. These examples are based on real scenarios, but any resemblance to actual persons or entities is purely coincidental.

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