Completion is a term used for when the sale completes and the shares and/or assets of the target officially pass from the seller to the buyer. A target date is usually set, and your legal team will work hard to ensure that target date is met.
The run up to completion of a transaction can be a very busy time for your legal team as they aim to ensure all transaction documents are agreed and all pre-completion requirements are completed by the target date. It can sometimes feel like things are moving at 100 mph so a good relationship with your legal team comes in very handy here as they will often be on the end of the phone to ensure the deal gets over the line.
Your legal team is likely to be working off a completion checklist which aims to address the following:
1. Is the target to be released from any guarantees or security over its assets?
If the target has any mortgages or charges in place the buyer may want such security to be released before the purchase completes or both parties may agree that a proportion of the purchase price will be used to pay off any outstanding loans to release the security.
If the target is under common ownership with another company and that other company is the guarantor of any of the target’s obligations , it will be for the seller’s legal team to ensure that the guarantor is released from those obligations prior to completion.
2. Do the selling shareholders/owners need releasing from any security they may have given?
Obviously crucial that this is addressed as the prior owners do not want to be securing the business going forward.
The sellers will need to review any documentation from any lenders as change of ownership provisions might trigger an Event of Default.
3. Is the transaction going to be publicly announced once complete?
If so, the seller may want to pre-agree the wording of any announcements to ensure that no confidential terms of the purchase have been included.
4. Have all transaction documents been agreed ready for signing?
In addition to the main Share Purchase Agreement, there will be several other documents which will need to be executed in order to complete the transaction. For example:
- Board minutes
- Resignation letters from the directors or secretaries of the target (if any directors are resigning on completion).
- Settlement Agreements (for any employees whose employment is to be terminated on completion, waiving any claims they may have against the target in relation to their employment).
- Disclosure Letter and accompanying bundle.
- Letters notifying the directors of the target that there has been a change of persons in significant control.
- Indemnity letters for any lost share certificates.
- Stock Transfer Forms if stamp duty is payable.
5. Have all completion deliverables been provided to the buyer?
- A copy of the target’s bank statement on the day of completion (to ensure there has been no unusual transfers of monies from the target prior to completion).
- The target’s statutory registers which (ideally) will have been kept up to date and will need to be delivered to the buyer on completion.
- Any share certificates in the buyer’s possession.
- All web-filing details for the target and Companies House authentication codes.
- Other documents and records relating to the target which are in the seller’s possession.
Once everything on the checklist is complete and all transaction documents are agreed, your legal team will prepare you to sign on the dotted line….
All the documents are signed, are we now complete?
Not necessarily. Signing (or “execution”) refers only to the physical signing of the transaction documents. Once all documents are signed your legal team will exchange signed documents with the buyer’s legal team. If exchange and completion is to take place simultaneously, both legal teams will then confirm that they are ready to officially complete and the transaction will be deemed to have taken place on that date.
Alternatively, there could be a need to have a split exchange and completion where certain conditions need to be met in order to complete. For example, if you are selling a financial services company the buyer may need to gain regulatory approval from the Financial Conduct Authority before they can actually purchase the company. A split exchange and completion allows for certainty of the transaction at signing and once all conditions are met the transaction can then officially complete. Sellers will be required to repeat the warranties given at exchange and make further disclosures to account for any significant changes within the business during the period between exchange and completion.
Whether you have a split or simultaneous exchange and completion will ultimately depend on the shape of the transaction.
If you would like any help and advice on your proposed business sale please contact our specialist corporate team on 0151 305 9650 or email email@example.com
This article is not intended to be interpreted as advice.
Next article comping up next week is on the topic of the post-completion tidy up.