Q. I have agreed to purchase 50% of the shares in an engineering company from the company owner for £10,000. Is it straight forward to transfer the shares into my name?
A. This can be done simply by the seller signing a stock transfer form transferring the agreed of shares to you. However, a buyer of a 50% shareholding in a private company would normally want to satisfy himself that all of the company's debts, liabilities and contracts (including contracts of employment) are disclosed to him and that he has full details of the company's financial status before agreeing to pay over the monies. Investigating these issues is known as "due diligence" and this normally takes a number of weeks to be completed. Of course, the greater the complexity of the company's affairs the more thorough this exercise will need to be.
Q. I have been through the accounts and they look fine on paper. However, could I sue if the accounts proved to be over optimistic?
A. If you are concerned about this then you should instruct your accountant to investigate this very carefully. In order to protect your position further you could ask the seller to enter into a contract containing warranties to the effect that the Seller has made full, fair and accurate disclosure of the company's financial status, its contracts and liabilities. If these warranties subsequently prove to be incorrect then you would have a right to sue for damages.
Purchasing shares in a business can be a very complex matter. Expert advice is essential. Should you have any queries regarding this issue or a related issue please contact Keith Swan of Patterson, Glenton & Stracey Solicitors by email at ks@pgslaw.co.uk or by telephone on 0808 231 7043.
