Navigating the acquisition or sale of a business and its assets, rather than the more common purchase or sale of the entity that owns them, can be a challenging process. In Scotland, there are distinct legal matters which shape how a deal must be structured and completed.
Whether you are buying or selling a business as a going concern or a portfolio of assets, careful planning at the outset can save considerable time, cost, and risk further down the line.
Below are our top five practical tips to bear in mind when undertaking a business and asset transaction in Scotland.
1. Choose the right deal structure
One of the earliest decisions relating to a potential acquisition or sale is whether to structure the transaction as an asset purchase or a share purchase, as the two carry very different legal and commercial consequences.
In an asset purchase, you can effectively ‘cherry-pick’ the assets you want to buy or sell and generally leave unwanted liabilities behind, which can be attractive to buyers. However, this comes at the cost of added complexity: each asset, contract, and property interest must be transferred individually, and third-party consents are frequently required to implement those transfers.
Considering the structure early, with your advisers, ensures the mechanics of the deal align with your commercial objectives and risk appetite.
2. Carry out a thorough Due Diligence exercise
For a buyer, a thorough due diligence exercise (legal, financial, technical or otherwise) can be the foundation of a successful and efficient business and asset acquisition.
A buyer should take the time to understand exactly what you are buying: the condition of the assets, the contracts being transferred, any outstanding liabilities, employee arrangements, and any regulatory or litigation risks. In an asset purchase, you generally acquire only the specific assets and liabilities identified in the transfer agreement, so it is essential to map these precisely. Robust due diligence not only protects you from unwelcome surprises but can also strengthen a buyer’s negotiating position on price, warranties, and indemnities.
As a seller, you should be sure you are selling only what you intend to, and consider the implications for any element of the business being left behind.
Gaps uncovered at this stage can often be addressed through targeted contractual protection or transitional arrangements, rather than being discovered, expensively, after completion.
3. Consider tax planning & implications early
Tax considerations can materially affect the economics of a deal, so they should be factored in from the outset rather than treated as an afterthought.
Where the transaction includes Scottish land or buildings, Land and Buildings Transaction Tax under the Land and Buildings Transaction Tax (Scotland) Act 2013 (rather than Stamp Duty Land Tax in England) will apply, and the amount payable by the buyer depends on the consideration attributable to the property and whether it is classed as residential or non-residential.
VAT treatment should also be considered as many business sales can qualify as a ‘transfer of a going concern’, which, if the conditions are met, allows the transfer to proceed without VAT being charged.
Early tax planning, including sensible apportionment of the purchase price across the assets, helps avoid unexpected liabilities and can deliver transaction cost savings.
4. Employee Transfer Regulations
When a buyer acquires a business as a going concern, the Transfer of Undertakings (Protection of Employment) Regulations 2006 – commonly referred to as ‘TUPE’ regulations – will usually apply. This means that the employees employed in the business transfer automatically to the buyer, on their existing terms and conditions, together with associated liabilities.
TUPE also imposes strict information and consultation obligations on both buyer and seller, and getting these wrong can lead to significant penalties.
Understanding who transfers, what liabilities come with them, and what consultation is required is essential to budgeting accurately and integrating the workforce smoothly after completion – it can also be a factor in deciding the deal structure. Engaging in the planning for this part of the process early, and with professional advice, is crucial.
5. Get title and property transfers right under Scots law
Transferring property (land and buildings) in Scotland is governed by Scots property law, which differs in important respects from the position in England & Wales. Heritable property (‘freehold’ equivalent) must be conveyed by a properly executed disposition (transfer deed), and title only passes on registration in the Land Register of Scotland — signing the contract alone is not enough.
Moveable assets, intellectual property, and contracts can each have their own transfer requirements, and leased premises will typically need the landlord's consent before it can be assigned / novated.
Attending to these formalities correctly, and in the right order, is critical to ensuring a buyer actually acquires good title to everything it has paid for.
Seeking specialist advice
We would always encourage you to seek specialist advice at an early stage when considering an acquisition or sale of business and assets. This ensures that risks are properly managed, and your acquisition or sale completes as smoothly as possible.
Please do get in touch with one of the Brodies colleagues below should you require any advice in relation to a business or asset purchase or sale.
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