If you are selling the assets or shares of your business, a well prepared set of heads of terms can save you time and money. It is surprising how many people agree a sale without laying down important terms of the deal.
If you are using commercial agents in the sale, then it is advisable to ask your solicitor to liaise with them before they send out their confirmation of sale.
So why are HOTS so important? A well prepared set of HOTS will provide a framework for the professional advisors and the buyer to work towards, and will help prevent a transaction drifting along with no agreed timetable.
What should be included in HOTS and why?
- Timetable-agree a timetable for: seller’s solicitors to send out contract papers, buyer to complete their due diligence which could include both accounting and legal, exchange of contracts and finally a completion date.
- What exactly you are selling? Specify which assets or shares are included or excluded from the sale.
- Who is the buyer? You should check out the credit worthiness of the person or company you are dealing with. You will be spending a lot of time and money in proceeding with the buyer and you need to be satisfied as to their bona fides and ability to fund the transaction. You may need to obtain references and proof of funds at the outset of the transaction.
- Confidential information. Before you start disclosing confidential information about your business, its customers or suppliers, it is important that you protect yourself as far as possible by getting your prospective buyer to enter into a non-disclosure or confidentiality agreement.
- Non-refundable deposit/deposit on exchange of contracts: It is of course usual for the buyer to pay a deposit on exchange of contracts, typically 10%. However, consider insisting on a non- refundable deposit on signing of HOTS to cover you against wasted costs if the buyer withdraws without good reason or does not meet agreed timetables. You will usually need to put in place an exclusivity agreement shortly after signing HOTS.
We recommend that if you are contemplating selling your business, you contact your legal advisers as early as possible so they can start preparing for your sale.