What is a transfer of business as a going concern? 4 FAQs

1. What is a transfer of business as a going concern?

A transfer of business as a going concern refers to the transfer of an entire business, or a part of the business (via the sale of certain assets), from one party (the seller) to another party (the buyer). With this type of sale, the business continues to operate without any significant interruption or change in its essential operating methods. This transfer typically involves the transfer of assets, contracts, equipment, IT infrastructure, employees, and liabilities associated with the business.

A transfer of a business as a going concern is different to a share sale - for more information about the key differences between asset sales and share sales, read this guide.

2. What are the benefits of a transfer of business as a going concern?

A transfer of a business as a going concern can offer several benefits to both the seller and the buyer, including:

1. Business continuity - The business’s operations can continue without disruption, ensuring stability for customers, suppliers, and employees. Although the ownership of the business changes, the assets related to the business usually stay the same, so existing contracts and systems will stay in place to ensure business continuity;

2. Keeps customer trust - The reputation, customer relationships and brand value of the business can be maintained when a business is sold as a going concern, because, from a customer perspective, the business continues to operate in the same way; and

3. Maintain contractual arrangements - Existing contracts, licences, permits, and intellectual property rights are typically transferred, avoiding the need for renegotiation. This can save time and money as new contracts with suppliers and employees do not need to be put in place.

For more information, read our comprehensive guide to business sales.

3. What are the steps involved in the sale of a going concern?

The specific steps involved in the transfer of business as a going concern will depend on the nature of the business and assets being transferred. However, the steps below are common in a transaction for the sale of a going concern:

1. Due diligence - it is important that due diligence is carried out on the business and assets being transferred in order to understand the risk profile for both the buyer and the seller of the transfer. For more information about due diligence on asset sales, use this checklist.

2. Use a sale of business as a going concern agreement template - A contract needs to be drafted which outlines the terms and conditions of the transfer, including the assets, liabilities, and employees being transferred. Read the question below to find out how Docue can help you with this!

3. Negotiate the transfer agreement - The parties need to agree on the terms of the agreement that will document the transfer of business as a going concern. For tips on how to negotiate this type of agreement, read this guide.

4. Employee consultation and notification - If employees are being transferred, consultation and notification procedures should be followed to comply with UK employment laws.

5. Completion of the transfer - The buyer and seller complete the transfer of assets, contracts, and liabilities as agreed upon in the transfer agreement. This may include some internal business approvals, such as documenting the approval via board minutes.

6. Transfer of business as a going concern - The buyer takes over the business operations, ensuring a smooth transition for employees, customers, and suppliers.

4. Is there a sale of business as a going concern agreement template?

Yes - another way of describing the sale of a business as a going concern is as an asset sale or a business purchase, so Docue’s asset purchase agreement template can be used for this type of transaction. The template has been drafted by lawyers and includes lawyer-drafted guidance notes to help you through the contract creation process. All you have to do is answer a series of simple questions and you will have a fully customised asset purchase agreement in no time.

Sign up now to use Docue’s sale of business as a going concern agreement template.