If you have entered into a business partnership, the best way to avoid a dispute arising is to ensure you have a comprehensive partnership agreement in place.

Partnership agreements are sometimes overlooked when a business is set up. Partners often believe they know how matters will be dealt with between them in the future and that they will be able to agree issues amicably as they arise. However, over time priorities can change and as a business grows, those involved may have different visions.

A well-drafted partnership agreement will put a framework in place that allows the enterprise to develop but ensures that everyone involved knows what they is expected of them. Being able to refer to a binding document often goes a long way to avoiding disagreements and misunderstandings.

What Happens If You Do Not Have A Partnership Agreement?

If you do not have a partnership agreement at all then the provisions of the Partnership Act 1890 will apply. The default conditions it contains can be problematic. For example, it provides that all partners can take management decisions and that they will all have an equal say in business decisions, any partner can end the partnership at any time, no partner can be required to leave the partnership and all partners will be jointly liable for the debts of the partnership and any wrongful acts of any partner.

What To Put Into Your Partnership Agreement

If you have a bespoke partnership agreement drawn up, you can choose different provisions to suit your circumstances. Matters that are commonly dealt with include the following:

• Who owns the partnership assets
• Who has authority for making the various decisions that need to be made
• Allocation of profits and losses;
• Who will be liable for losses and debts;
• How new partners can join the partnership;
• The process for partners who wish to leave;
• The process for removing partners;
• The process for resolving disputes.

How To Deal With Partnership Disagreements

If a dispute does arise between partners, it is important to try and resolve it quickly before it escalates and becomes damaging to the business and to relationships. Taking legal advice from an advocate with dispute resolution experience can be helpful. They will be able to suggest ways of approaching the disagreement that can avoid the situation deteriorating.

They will also be able to negotiate on your behalf and where necessary, support you through alternative dispute resolution, such as mediation. As well as being a faster way of resolving difficulties than a court hearing, mediation also has the benefit of preserving a relationship and allowing you to reach mutual agreement so that everyone involved can move past the dispute.

Reviewing Your Partnership Agreement

A partnership agreement can be put into place at any time, provided all partners are in agreement. If you do not have an agreement or if the one you do have is inadequate and is not robust enough to deal with your business needs, it is advisable to have a new one drawn up.

You should work with your partners to identify key issues and areas that could cause contention in the future. By talking things through calmly in advance then putting the agreed points into a written document you stand the best possible chance of avoiding a dispute further down the line.

An important part of the agreement is having a set process for resolving disputes, so that if one does arise you have a clear path for dealing with it.

Contact Us

At Quinn Legal our company and commercial team can advise you in respect of partnership matters, to include advising on what should be included in your partnership agreement, drawing up the agreement and resolving disputes.

For a no obligation initial consultation or to make an initial free enquiry, please call our team on 01624 665522, email us at email us: hello@quinnlegal.im or fill in our online enquiry form.

Purchasing the assets of a business from an administrator or liquidator can be a cost-effective way of acquiring the equipment and other materials necessary to start or expand your own business. However, when buying from an insolvent business there are a number of points to be aware of.

The assets will not come with any assurances or guarantees. This means you need to carry out investigations before the transaction goes ahead to make sure you know exactly what you are buying and the potential risks involved.

Investigating assets before purchase

As the assets will not be sold with the usual warranties or indemnities, they will usually be available at a lower price than normal.

You will buy ‘such right, title and interest as the seller has’ and you might not be given extensive information about the title so you will need to carry out careful due diligence to ascertain the extent of the seller’s ownership.

You are also unlikely to be given any information about liabilities that attach to the assets, such as potential legal claims.

You will generally be required to confirm certain points to the administrator when completing the purchase, including the following:

• Your understanding that no warranties are indemnities are given;
• That you have carried out your own investigations and inspections in respect of the assets;
• That you have taken independent legal advice before proceeding with the purchase.

Taking on insolvent company assets

Commercial property

Taking on a commercial lease will require the landlord’s consent. While this is being agreed upon it may be possible to negotiate a licence to occupy in the meantime. In any event, it is important to ensure that the landlord’s consent will be forthcoming before buying a business that relies on the premises in question.

Equipment, machinery and stock

You will need to check whether equipment, machinery and stock are owned by the business or leased. If they are leased, then you will need to negotiate a lease yourself with the owner as the administrator has no title to sell or authority to transfer a lease.

If stock is included in the purchase, then the administrator will ask you to indemnify them in respect of any liability in case the stock subsequently transpires to be subject to a retention of title.

Intellectual property

You will also need to check whether the seller has title to any intellectual property that is included. If it is on licence only, you will need to negotiate a licence, as the administrator will not be able to sell this to you.

Employees

If you are purchasing a whole business as a going concern, you will also take on the employees, with their continuous period of employment remaining unbroken. You are not required to keep to the same terms of employment, however any changes will be subject to a trial period. At the end of the trial period, the employee can reject the new contract terms, in which case they will be deemed redundant. You therefore need to be aware that you may be facing redundancy costs and you should take this into account when negotiating price.

Contact us

At Quinn Legal our company and commercial team can advise you in respect of the purchase of business assets, to include employee liability.

For a no obligation initial consultation or to make an initial free enquiry, please call our team on 01624 665522, email us at email us: hello@quinnlegal.im or fill in our online enquiry form.

 

When you are buying or selling a business, it is vital to ensure that you understand the extent of the indemnities and warranties that will be set out in the sale agreement and the liability you are accepting by signing.

The agreement will include extensive clauses that are generally negotiated between the parties before the final agreement is signed. We take a look at the difference between indemnities and warranties and why they are so important.

Indemnities

The seller of a business will agree to a number of indemnities, undertaking to reimburse the buyer if a specified liability arises. Examples include the following:

• An indemnity protecting the buyer from any claims made by employees in respect of something which has happened before the completion of the sale;
• Indemnity in respect of a legal claim against the company for something done before the sale;
• Indemnity in respect of environmental issues that existed before the sale;
• Indemnity for tax and related penalties that are owed for the time before the sale.

Ideally, the buyer’s due diligence process will uncover issues that could arise, but it is impossible to discover every likely claim. Indemnities will protect the buyer from liability for events that happened before they bought the business.

An indemnity clause can be capped to limit the amount of compensation that can be sought. In any event, no extra compensation will be payable over and above any loss sustained. It should be noted that the buyer also has a duty to mitigate any losses so far as is reasonably possible, ie. to do what they can to minimise any claim that is being made against the business.

Warranties

A warranty is a statement about the organisation and its affairs that the buyer can rely upon. Common warranties include:

• Confirmation that the business’s accounts and other financial information that has been provided to the buyer are accurate;
• Property and other assets are owned as stated;
• That there is currently no litigation or pending litigation against the business;
• The full extent of any legal action or disputes has been revealed;
• That there are no known product liability issues.
• No outstanding tax liabilities exist;
• Facts about employees are accurate.

Why indemnities and warranties are important

As a buyer, you need to be able to rely on the indemnities and warranties given so that, if difficulties arise in the future, you can claim compensation for any losses from the seller.

This means that if a warranty turns out to be untrue and the actual situation results in the business being worth less, then damages for this reduction can be sought.

If an indemnity turns out to be untrue, then the buyer does not need to show that the value of the company is less, the seller will simply be liable for the loss that arises.

Having a well-drafted sale agreement in place is essential for managing the risk involved in taking on an existing business. If you ask us to act for you, we will look at the business as a whole and draw up a bespoke agreement that seeks to minimise your exposure to risk and liability.

By ensuring that you have a robust agreement in place, you can also reduce the likelihood of a disagreement arising in the future, as it should be clear exactly where the liability lies, leaving little scope for dispute.

Contact us

At Quinn Legal we have in-depth experience in the sales and purchases of business across a range of sectors. If you are thinking of buying or selling a business on the Isle of Man, we can advise you on the sale agreement and negotiate strongly on your behalf to ensure you receive the best deal possible.

For a no obligation initial consultation or to make an initial free enquiry, please call our team on 01624 665522, email us at email us: hello@quinnlegal.im or fill in our online enquiry form.

 

In buying or selling a company, you can choose to transfer either the assets or the shares. There is a distinct difference and whether you are buying or selling, it is important to understand the liabilities involved with the transaction.

Which is best, an asset sale or a share sale?

Deciding whether it is best to buy or sell the assets or shares will depend on the unique circumstances of the company, the owner and the buyer. There are many considerations to take into account, including the likely ongoing liabilities and the price.

The decision of whether to sell shares or assets only arises when the business in question is a limited company. Where the enterprise is operated by a sole trader or partnership, there will not be any shares to sell.

Asset sale

Buyers usually prefer to purchase just the assets of a business. This is because they can effectively leave behind any unwanted liabilities that the company may have incurred, such as onerous commercial leases, environmental issues or legal action. They can, if they choose, take on specified liabilities, such as a commercial lease, business contracts and rental agreements for plant and machinery.

The buyer can negotiate exactly which assets they want and do not have to take on employees where Isle of Man law applies as the Island has not adopted the UK’s Transfer of Undertakings (Protection of Employment) Regulations 2006.

Share sale

Sellers would usually rather sell shares in the company. This is because all of the assets, obligations, liabilities and rights that the company has will be transferred to the buyer, freeing the seller of potentially unwanted issues going forward.

Because of the onerous nature of this type of purchase, it is essential that the buyer carries out in-depth due diligence investigations to ascertain the extent of the liabilities they are taking on. This should include financial and legal investigations carried out by professionals.

A share purchase can be less disruptive to the running of a business as the company’s contracts and licences will continue to run.

Business sale agreement

The terms and conditions included in any sale agreement are vitally important to protect the buyer and seller from liabilities. It is important that both parties understand the extent of what is changing hands.

In a sale, particularly in the sale of shares, the agreement will often contain extensive warranties and indemnities to safeguard the buyer’s position.

Warranties given by the seller include that accounts and other financial information are correct, shares are owned by those noted as owners, verification of the company structure, good title to assets is held, to include intellectual property and that information in respect of contracts, licences, employment and any legal disputes is correct.

The seller will also be required to give indemnities on the sale of shares. This is the agreement to compensate the buyer in respect of certain specified issues, such as a claim for environmental contamination, legal proceedings against the company or customer disputes. Indemnities are usually limited, for example, in respect of amount, time or number of claims.

The extent of any warranties or indemnities is often an issue for negotiation during the sale process.
For more information about purchasing a business and the due diligence process, see our recent article How to buy a business.

Contact us

At Quinn Legal we have extensive company and commercial knowledge. If you are considering buying or selling a business on the Isle of Man we can advise you as to whether an asset or a share transaction would be in your best interests. We will also represent you during negotiations in respect of the purchase agreement and ensure that you are fully aware of the extent of any liabilities that you are taking on.

For a no obligation initial consultation or to make an initial free enquiry, please call our team on 01624 665522, email us at email us: hello@quinnlegal.im or fill in our online enquiry form.