Buying a limited company can be a smart way to expand into a new market, gain valuable assets, or grow your business quickly. Whether you’re an entrepreneur or an investor, understanding the process is essential to making the right decisions. In this guide, we’ll walk you through what buying a limited company involves, the benefits it offers, the key steps to take, and the legal aspects you need to consider.
What is a limited company?
A limited company is a business structure that treats the company as a separate legal entity from its owners. Here are some of its key features:
Limited liability: Shareholders are only responsible for the company’s debts up to the amount they’ve invested.
Separate legal identity: The company can enter into contracts, own property, and even be sued – all in its own name.
Governance by company law: Limited companies in the UK must follow the rules set out in the Companies Act 2006.
There are two common types of limited companies:
Private limited companies (Ltd): Typically run by small-to-medium-sized businesses (SMEs). If you’re curious, check out our guide to private limited companies.
Public limited companies (PLC): Larger businesses whose shares can be bought by the public. You can learn more in our guide to public limited companies in the UK.
Benefits of buying a limited company
Purchasing an existing limited company offers a range of advantages:
Established operations: The company may already have a proven business model, customer base, and brand recognition. This can reduce start-up time and costs compared to creating a new business from scratch.
Existing assets and contracts: Buying a company includes acquiring its tangible assets, such as property and equipment. Intangible assets include intellectual property and contracts with suppliers and clients.
Pre-approved licenses and registrations: The business may already be registered for VAT, have required industry licenses, and have established banking relationships. These formalities can save time on regulatory processes.
Faster market entry: A well-run company offers an immediate pathway to enter or expand in a particular industry. Buyers benefit by not needing to build infrastructure from the ground up.
How to buy a limited company
Buying a limited company is a multi-step process that requires careful planning, research, and legal compliance. Expanding on each step can help you navigate the acquisition smoothly and avoid costly pitfalls.
1. Identify a suitable company
Begin by defining your business objectives. Are you looking to enter a specific industry, expand your operations, or acquire strategic assets? Business brokerage websites, trade associations, and professional networks can be valuable resources to find potential companies for sale.
2. Evaluate the company’s history and performance
Don’t just look at financial statements - also assess the company’s market share, customer loyalty, and brand reputation. Research how the business has adapted to market changes, and understand its competitive landscape.
3. Perform due diligence
This is one of the most crucial stages.
Financial due diligence: Scrutinise historical financial performance, profit margins, debts, and tax obligations.
Legal due diligence: Identify any legal disputes, regulatory issues, or intellectual property claims.
Operational due diligence: Review supplier contracts, customer agreements, and staff employment terms. Engage professionals, such as accountants and solicitors, to ensure no details are missed.
4. Negotiate the purchase price
Use the findings from due diligence to inform your negotiations. Consider future earnings potential and risk factors when agreeing on a final price. In some cases, you may negotiate for an earn-out arrangement, where part of the payment depends on future performance.
5. Draft and sign the purchase agreement
A solicitor will help you draft a comprehensive sale and purchase agreement that outlines:
The purchase price and payment terms
Warranties and indemnities
Conditions for completion
Transfer of ownership and liabilities
6. Complete the transfer of ownership
If buying shares, update the company’s records with Companies House to reflect the new shareholders. Ensure all legal and regulatory changes, such as updating the company director details, are completed.
7. Post-purchase integration
Integrate the new business into your operations, aligning company culture, processes, and branding.
Do you need a solicitor to purchase a limited company?
While it’s not a legal requirement to hire a solicitor for buying a business, involving one is highly recommended:
What services can they help with?
Due diligence: A solicitor can uncover potential risks by reviewing contracts, liabilities, and compliance issues.
Drafting and reviewing agreements: They ensure the sale and purchase agreement protects your interests.
Regulatory compliance: They can guide you through any licenses, permits, or changes required with HMRC and Companies House.
Managing intellectual property: If the company owns trademarks or patents, a solicitor helps secure their transfer.
Things to consider before purchasing
When purchasing a limited company, it’s critical to assess all aspects of the business, both financial and operational, to ensure you make a well-informed investment.
Financial health and stability: Examine not only past profitability but also revenue trends, cash flow consistency, and customer payment history. Identify any seasonal fluctuations or dependency on a small number of clients. Consider commissioning a financial audit if the business’s finances are complex.
Outstanding liabilities: Understand the company’s current debts, including bank loans, credit agreements, and unpaid invoices. You’ll inherit these liabilities if you buy the shares of the company.
Employment contracts and obligations: Review staff contracts, redundancy terms, and pension schemes. Confirm that employee-related tax filings and contributions are up to date to avoid future liabilities.
Regulatory compliance: Assess whether the company complies with relevant industry regulations. If it holds licences, permits, or certifications, verify their validity and transferability.
Tax status: Ensure VAT, corporation tax, and PAYE filings are current. Investigate any outstanding tax disputes or penalties.
Customer and supplier relationships: Examine long-term contracts, payment terms, and the reliability of key suppliers. Understand the customer base’s stability and identify any concentration risk from over-reliance on a few major clients.
Intellectual property: Check the ownership of trademarks, copyrights, and patents. Ensure that the intellectual property necessary for business continuity is protected and transferable.
FAQs
Can you buy a limited company?
Yes, anyone can buy a limited company in the UK. You can acquire shares in an existing business or purchase a ready-made company. Buying shares gives you ownership and control of the entire business. Purchasing assets allows the selective acquisition of certain elements.
Do you pay stamp duty if you buy a limited company?
Stamp duty may apply when purchasing shares in a limited company. The current rate in the UK is 0.5% of the total value of the shares.
Final thoughts
Buying a limited company can sometimes be a smart investment. It offers investors the chance to buy an established business with less risk than starting from scratch. Thorough research, due diligence, and professional advice are essential to make a sound decision. By understanding the legal framework and taking strategic steps, you can position your new venture for long-term success.
Looking for legal help? Get in touch to see how one of our corporate lawyers can help.
Disclaimer: This article only provides general information and does not constitute professional advice. For any specific questions, consult a qualified professional. Bear in mind that tax rules can change and will differ based on your circumstances.