How UK SMEs And Startups Can Buy Another Company: Key Legal Steps

If you’re thinking about growth, buying another business can feel like the fastest way to get there.

Maybe you’ve found a competitor with a great customer base, a startup with a product you want to fold into your own, or a business with a team and infrastructure that would take you years to build from scratch.

Whatever the reason, when one company buys another in the UK, the legal steps matter just as much as the commercial opportunity. A “good deal” can become expensive (and distracting) if you inherit hidden liabilities, unclear contracts, or employment problems.

Below, we break down the key legal steps SMEs and startups should consider, in plain English, so you can move quickly without cutting corners that come back to bite you later.

Why Do Companies Buy Other Companies (And What Does “Success” Look Like)?

Before you get into deal documents, it helps to be clear about your end goal. Most acquisitions fall into a few common buckets:

• Revenue growth (buying customers, contracts, and recurring income)
• Capability growth (buying a team, technology, IP, or operational capacity)
• Market entry (buying a business with a presence in a new region or sector)
• Cost reduction (consolidation, removing duplication, better supplier terms)
• Defensive strategy (buying a competitor before someone else does)

For SMEs and startups, a really common pitfall is rushing because the opportunity feels time-sensitive. But you’ll usually make better decisions if you define success early, for example:

• What assets are you actually buying (clients, equipment, IP, brand, team)?
• Do you need the seller to stay involved for a handover period?
• Are you prepared to take on staff (and their associated rights and risks)?
• Is the value mainly in contracts that might not be transferable without consent?

Once you know what you’re buying for, it becomes much easier to choose the right deal structure and legal protections.

Share Purchase vs Asset Purchase: Which Structure Fits Your Deal?

When a company buys another business in the UK, there are two main legal structures you’ll typically see:

1) Share Purchase (Buying The Company Itself)

A share purchase is where you buy shares in the target company (usually all, or a controlling majority). The company continues to exist, and it keeps owning its assets, contracts, IP and employing its staff.

Why buyers like it:

• Often simpler operationally (customers and suppliers may not notice any change)
• Contracts may stay in place without needing assignment (depending on terms)
• Licences, registrations and accounts may remain with the company

Main legal risk: you inherit the company’s liabilities (including unknown liabilities), because you’re stepping into ownership of the same legal entity.

A properly drafted Share Sale Agreement is usually critical here, because your protections often come from warranties, indemnities, and disclosure.

2) Asset Purchase (Buying Selected Assets From The Business)

An asset purchase is where you buy specific assets (for example, stock, equipment, IP, domain names, customer lists, goodwill, and sometimes contracts). You’re not buying the shares in the company itself.

Why buyers like it:

• You can “pick and choose” what you’re acquiring
• You can often ring-fence liabilities more effectively
• Useful if the seller’s company has historic issues or messy accounts

Main legal risk: you may need third-party consents to transfer key contracts (and sometimes licences), and employees may transfer across under TUPE in many cases.

Asset purchases are commonly documented in a Business Sale Agreement that clearly lists what is and isn’t included in the sale.

There isn’t a one-size-fits-all choice. The “right” structure depends on what you’re acquiring and what risks you can realistically accept (or insure against).

A Step-By-Step Legal Roadmap For Companies Buying A UK Business

Deals can look different depending on size and complexity, but for most SMEs and startups, the process tends to follow this flow.

1) Agree Heads Of Terms (Without Accidentally Making A Binding Deal)

Heads of terms (sometimes called a term sheet or memorandum of understanding) is where you set out the commercial agreement in principle - price, structure, timeline, deposits, exclusivity, and any conditions (like funding or due diligence).

The key is getting the legal wording right so you don’t accidentally lock yourself into a binding purchase before you’ve done proper due diligence. You can also use heads of terms to:

• set an exclusivity period (so the seller doesn’t shop the deal around)
• agree confidentiality and information-sharing rules
• confirm what’s included in the price (assets, IP, stock, debt, cash in business)

2) Confirm Your Funding And Board/Shareholder Approvals

Even smaller deals can create internal governance requirements.

• If you’re a company, check whether your directors need a board resolution, and whether shareholder consent is required under your articles or any investor arrangements.
• If you’re raising capital for the acquisition, you’ll want to align funding terms with the acquisition timeline (and any “long stop” date).

If you have investors or co-founders, it’s worth checking your Shareholders Agreement early, as it may contain consent requirements or restrictions on major transactions.

3) Do Due Diligence Before You Commit

Due diligence is where you verify what you think you’re buying, and identify any risks you need to price in, fix, or protect yourself against contractually.

This is where many “quick” acquisitions slow down - but it’s also where you avoid buying problems you didn’t bargain for.

4) Draft And Negotiate The Sale Documents

Your main agreement will depend on deal structure:

• Share purchase: share purchase agreement / share sale agreement
• Asset purchase: business sale agreement / asset purchase agreement

Then you’ll usually need supporting documents like:

• disclosure letter (especially in share deals)
• new employment contracts or variations
• IP assignments or licences
• property documents (leases, licences to occupy)
• deeds of novation/assignment for contracts

5) Completion And Post-Completion Integration

Completion is the moment money changes hands and legal ownership transfers. But for most SMEs, the real “work” begins after completion - integrating staff, systems, branding, contracts, and customer communications.

This is also where you need to make sure post-completion obligations are met (for example, filings at Companies House in share purchases, notifications to banks, updating data protection documents, and handover support).

Due Diligence: What Should SMEs And Startups Check Before Buying?

Due diligence can feel daunting, particularly if you’re an early-stage company and this is your first acquisition. But if you treat it as a structured checklist, it becomes manageable.

Here are key areas companies should consider reviewing when buying another company in the UK.

Corporate And Ownership

• Who actually owns the shares (and are there any options, warrants, or investor rights)?
• Are there charges registered against the company (for example, security to a lender)?
• Are Companies House filings up to date?
• Are there any disputes between founders/shareholders?

Financial And Tax (With Your Accountant)

• Management accounts, tax returns, VAT position, PAYE compliance
• Debts, aged receivables, customer concentration risk
• Recurring revenue quality (churn rates, cancellation terms)
• Any unusual or one-off revenue inflating performance

Commercial Contracts (Customers, Suppliers, Partners)

• Key customer contracts and whether they’re assignable/transferable
• Supplier contracts and whether pricing will continue after the sale
• Any “change of control” clauses that allow termination on acquisition
• Any material breaches, disputes, or refund issues

If key contracts can’t be transferred cleanly, you may need a Deed of Novation so the buyer steps into the contract and the seller is released.

People And Employment (Including TUPE)

If the target has staff, you’ll want to understand exactly who you’re taking on, and on what terms. This isn’t just an HR issue - it’s a legal risk and cost issue.

• Employment status (employee, worker, contractor)
• Pay, commission, bonuses, and benefits
• Restrictive covenants, confidentiality obligations, IP clauses
• Disciplinary issues, grievances, ongoing claims or settlement risks

In many business transfers, employees transfer across automatically under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE). This can apply in asset purchases and outsourcing-style arrangements. It’s worth working through a TUPE transfer checklist early, because consultation obligations and timelines can affect your completion date.

Where you’re onboarding new hires as part of the transition, having a properly drafted Employment Contract helps avoid misunderstandings about notice, duties, IP ownership, and confidentiality.

IP And Tech (Often The Real Value In Startup Acquisitions)

Startups are often acquired because of technology, branding, or know-how - but that value can disappear quickly if IP ownership isn’t clear.

• Who owns the code/content/designs (employees vs contractors vs founders)?
• Are there written IP assignments from contractors?
• Are there open-source software risks or licence breaches?
• Are trade marks registered (or at least protected by use)?
• Are domains, social accounts and app store accounts transferable?

Property And Assets

• Is there a lease, and does it permit assignment or require landlord consent?
• Are there hire purchase agreements or finance arrangements tied to equipment?
• Is ownership of key assets documented (or are they leased/financed)?

Regulatory And Data Protection

Depending on the sector, you may need to consider professional rules, licences, advertising compliance, or consumer law obligations.

Also check data protection: if you’re acquiring customer lists, mailing lists, or user data, you need to make sure you can lawfully use it post-acquisition and that privacy notices and consents are in order.

If you want a structured approach, a Legal Due Diligence Package can be a practical way to keep the process focused while still covering the major risk areas.

The Key Legal Documents And Deal Protections You Shouldn’t Skip

For SMEs and startups, the aim is usually to keep the deal moving while still being protected. The best way to do that is to use the right documents and focus negotiation on the clauses that actually matter.

Sale Agreement (The Main Contract)

This is the core contract that sets out the purchase price, what’s being sold, completion mechanics, and liability allocation.

• In a share deal, the Share Sale Agreement typically includes warranties, disclosures, limitations of liability and indemnities.
• In an asset deal, the Business Sale Agreement will list the assets, explain which liabilities transfer (if any), and deal with apportionments like stock and work-in-progress.

Warranties, Indemnities And Disclosures

These are the “risk allocation” tools that often determine whether a deal is safe.

• Warranties are promises about the state of the business (for example, “there is no pending litigation” or “accounts are accurate”). If untrue, you may have a claim.
• Indemnities are usually stronger protections for known risks (for example, “seller will cover any tax liability arising before completion”).
• Disclosure is where the seller reveals exceptions to warranties. This is why disclosure letters and disclosure bundles are such a big part of share purchases.

For smaller acquisitions, you’ll often negotiate practical limits too, such as time limits for claims, caps on liability, and minimum claim thresholds.

Earn-Outs, Deferred Consideration And Retention

If you’re not paying 100% upfront, or you want the seller to remain invested in a smooth transition, you might use:

• Earn-out (extra payments if the business hits agreed targets)
• Deferred consideration (paying part of the price later)
• Retention (holding back an amount to cover post-completion issues)

These can work well, but they need careful drafting. Ambiguous targets or unclear accounting rules are a common cause of post-deal disputes.

Contract Transfers (Assignment Or Novation)

If you’re doing an asset purchase, many contracts won’t automatically move to you. Whether you can assign them depends on the contract terms, and some counter-parties may refuse consent or ask for renegotiation.

Where you need all parties to agree to the transfer (and to release the seller), a Deed of Novation is often the cleanest route.

Employment Documents And TUPE Communications

If employees are transferring under TUPE, you’ll need to handle:

• employee liability information from the seller
• information and consultation (where required)
• harmonisation risks (you generally can’t just change terms because of TUPE)

It can feel like a lot, but approaching it systematically (and early) makes a big difference.

Key Takeaways

• When a business acquisition happens in the UK, the “right” deal is the one that matches your growth goal and properly manages risk.
• Share purchases can be operationally smoother, but you may inherit historic liabilities, so strong warranties, disclosures and indemnities matter.
• Asset purchases can help ring-fence risk, but you may need third-party consents to transfer key contracts, and TUPE may still apply to staff.
• Due diligence should cover corporate ownership, finance and tax (with your accountant), commercial contracts, employment, IP/tech, property, and data protection.
• Your sale documents should clearly deal with price mechanics (including earn-outs/deferred payments), what’s included, completion steps, and liability limits.
• Don’t rely on generic templates - acquisition documents are highly deal-specific, and small drafting issues can create big commercial problems later.

Disclaimer: This article is for general information only and isn’t legal, tax or financial advice. Every acquisition is different, so you should get advice on your specific circumstances (including from your accountant on tax).

If you’d like help buying a business or structuring an acquisition, you can reach us at 08081347754 or team@sprintlaw.co.uk for a free, no-obligations chat.