Share Purchases in Northern Ireland: What Buyers and Sellers Need to Know

You have found the right business to acquire. The contracts are valuable, the staff are experienced, and the company has an established reputation in its market. In many cases, the simplest way to take control of a business like this is not to buy each of its assets individually, but to buy the company itself. This is the essence of a share purchase, and it is one of the two principal routes by which a business changes hands in Northern Ireland.

This article is the second in our series on mergers and acquisitions for business owners and investors in Northern Ireland. It explains how share acquisitions work, why they are often favoured, and the risks and protections that buyers and sellers should understand before committing to a deal.

What Is a Share Purchase?

In a share purchase, the buyer acquires the shares, or a controlling shareholding, in the target company from its existing shareholders. The company itself does not change. It continues to own its assets, employ its staff, and remain party to its contracts exactly as before. What changes is ownership of the shares, and with that ownership comes control of the company.

The distinction is best understood by picturing the ownership structure. Before completion, the company's existing shareholders own the company, and the company owns everything within it. After completion, the buyer stands in the shareholders' place. The assets, employees, contracts and goodwill all stay precisely where they are; only the identity of the owner at the top has changed.

Why Parties Choose a Share Purchase

The principal attraction of a share purchase is business continuity. Because the company survives the transaction intact, its existing contracts remain in place, its employees remain employed by the same legal entity, and its customer and supplier relationships continue uninterrupted. Licences and permits held by the company are often easier to preserve, because the entity that holds them is unchanged. For a buyer who values the business as a functioning whole, this seamlessness can be a decisive advantage.

The Buyer's Biggest Concern: Hidden Liabilities

This continuity, however, carries a corollary that every buyer must grasp. Because the buyer acquires the company as a whole, it generally inherits the company's entire history, including any existing liabilities, disputes, tax exposures and contractual obligations. When you buy shares, you acquire both the strengths and the weaknesses of the company.

Those weaknesses can take many forms. Historic tax issues, employment disputes, regulatory breaches, undisclosed litigation, environmental liabilities and defective or onerous contracts may all lie beneath the surface of an otherwise attractive business. Unlike an asset sale, where liabilities generally remain with the seller unless the buyer agrees to assume them, in a share purchase the company's liabilities travel with it. Identifying and managing that inherited risk is the central challenge of any share acquisition.

Due Diligence: Looking Under the Bonnet

The buyer's principal protection against hidden liabilities is thorough due diligence, the process by which the buyer investigates the company it is acquiring. In a share purchase, the enquiry is necessarily wide-ranging, because the buyer must understand the company's full history and exposure rather than merely the condition of particular assets.

A well-run exercise will examine the corporate position, including share ownership and the company's constitutional documents; the commercial position, including customer contracts and supplier agreements; property matters such as ownership and leases; employment, including contracts, grievances and outstanding claims; and the financial and tax position, including the accounts and the company's compliance with its obligations to Revenue. The aim throughout is practical rather than academic: to understand what the buyer is really taking on before the price and the protections are finalised.

Warranties and Indemnities: Managing Risk

Due diligence rarely uncovers everything, and so the sale agreement itself provides a further layer of protection through warranties and indemnities. Warranties are contractual promises by the seller about the state of the company, for example that the accounts are accurate, that there are no undisclosed disputes, and that tax returns are up to date. If a warranty later proves untrue and the buyer suffers loss as a result, the buyer may have a claim for breach of contract.

Indemnities operate differently. An indemnity is a specific promise to reimburse the buyer, pound for pound, in respect of an identified risk, such as the outcome of a known dispute or a particular tax exposure revealed during due diligence. Where a warranty compensates for a general breach, an indemnity offers targeted protection against a known or suspected problem. Alongside these protections runs a disclosure process, in which the seller provides detailed information qualifying the warranties it has given.

The Share Purchase Agreement

These commercial arrangements are captured in the share purchase agreement, the central document in the transaction. Without descending into drafting detail, the agreement will typically address the purchase price and how it is calculated and paid, the arrangements for completion, the warranties and indemnities described above, any restrictive covenants preventing the seller from competing or poaching staff, and any earn-out under which part of the price depends on the future performance of the business.

Common Issues in Northern Ireland SME Transactions

Share purchases involving Northern Ireland's small and medium-sized enterprises raise recurring practical themes. Many target companies are family-owned or owner-managed, and their record-keeping may be informal, which can make due diligence more demanding. It is common to find family members employed by the business, sometimes without formal contracts, and to find trading premises held separately from the trading company. None of these features is a barrier to a successful sale, but each needs to be identified early and handled with care.

Key Takeaways

A share purchase transfers ownership of the company itself, preserving its contracts, employees and relationships largely undisturbed. Its great advantage is continuity; its great risk is that the buyer inherits the company's liabilities along with its assets. Rigorous due diligence and carefully negotiated warranties and indemnities are the tools that allow buyers to manage that risk and sellers to achieve a clean exit.

Our Commercial team advises buyers, sellers and investors across Northern Ireland on share transactions of every size, helping clients to identify risk and negotiate appropriate protections. If you are contemplating an acquisition or a sale, or would like to discuss any of the issues raised in this article, please do not hesitate to get in touch.

To speak with a member of our team, call us on 028 2752 6131 or email enquiries@paduffy.com.

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