How Much Are The Legal Fees for Buying a Business: The Real Numbers

Legal costs for buying a business are an essential consideration for any buyer. This guide breaks down the typical legal fees and factors affecting them. Understand what to expect to manage your budget effectively.

Key Takeaways

It is important to understand the various factors that affect the legal fees.
The complexity and size of the transaction, as well as the location of the law firm, significantly influence the legal fees incurred during the purchase.
Choosing between indicative quotes and fixed-fee services can impact budgeting; fixed fees offer more financial certainty, while indicative quotes may lead to potential cost overruns.

Understanding Legal Costs for Buying a Business – A Practical Guide

Legal services play a vital role in any business purchase, covering professional fees, due diligence, and other related expenses. Buyers should understand these costs upfront to avoid unexpected financial burdens. Legal firms should disclose their pricing and service details for specific areas of law, ensuring transparency and helping buyers make informed decisions.

The overall expenses encountered when buying a business in the UK include not just the purchase price, but also legal costs, financing options, and post-purchase considerations. By delving into this practical guide, you’ll gain a comprehensive understanding of the costs involved and how to manage them effectively.

Introduction

Purchasing a business involves several critical steps, from thorough research and arranging finance to making an offer and completing the sale with legal representation.

In this article, we discuss (in the following order):

Factors influencing legal fees.
Comparing indicative quotes vs fixed-fee services.
How much do solicitors charge for buying a business (with REAL NUMBERS).
Different due diligence levels.
What happens if the deal aborts.

Factors Influencing Legal Fees

Several factors influence the legal fees associated with buying a business, including the transaction’s complexity, the deal’s size, the law firm’s location, and whether communications are billable. The solicitor’s experience and expertise also impact the overall costs.These factors help you better anticipate the costs involved and choose the right legal services to fit your needs.

Complexity of the Transaction

Transaction complexity can significantly affect legal costs. For instance, deals involving earn-outs or Special Purpose Vehicles (SPVs) can be more intricate and thus more expensive. Involvement of multiple sellers and buyers also adds to the complexity and legal costs. Further, if you are buying the business with a loan, then more documentation will be required and, accordingly, more will need to be spent on legal fees.

Transactions with unique structures or performance conditions require more comprehensive legal analysis and documentation, leading to higher fees. Understanding these complexities helps anticipate and plan for the costs involved.

Video about the different ways to structure a business purchase.

Size of the Deal

Larger transactions typically incur higher legal costs due to the extensive due diligence and legal oversight required. Deals involving numerous parties often lead to increased documentation and negotiation efforts, driving up costs.

Intricate legal issues necessitate more expertise and resources, resulting in elevated fees. Generally, larger deals create a heightened workload, leading to more significant legal costs. The longer the deal takes (see average deal length), the higher the legal fees.

Location of the Law Firm

The geographical location of a law firm can significantly impact the fees charged for legal services. Law firms in major cities like London often charge higher fees compared to those outside of London due to higher operating costs. Solicitors in London tend to charge more, reflecting the cost of living.

These higher operating costs are passed on to clients through increased fees.

Consider the location of your law firm when planning your budget for legal services. This is especially relevant because, nowadays, the majority of deals are completed online. For this, it is not strictly necessary for your solicitor to be physically present in London. For example, Zoppi & Co operates exclusively online, leading to cost savings that reduce legal fees.

Are communications billable?

In the complex process of buying a business, having constant access to your solicitor to answer questions is crucial. However, many law firms charge for every email, phone call, and meeting, which can add up quickly.

Some firms like Zoppi & Co offer fixed-fee packages that include all communications, providing financial predictability and peace of mind.

Are negotiations billable?

Negotiating the sale and purchase agreement is often time-consuming and expensive. These negotiations can last weeks or months, requiring numerous strategy meetings and extensive revisions to the agreement. Ensure these negotiations are included in your quote to avoid unexpected fees.

Some firms, like Zoppi & Co, offer unlimited time for negotiating the SPA, disclosure letter, and ancillary documents, ensuring that all aspects of the transaction are thoroughly addressed without additional costs.

Number of transactions per law firm

Some law firms may handle dozens of M&A deals per month. This may be preferable if you are an institutional buyer making numerous purchases every year, and you don’t mind slower response or turnaround times. Instead, if you are an individual looking for a faster, more hands-on, personalised service and want to deal with one main point of contact instead of numerous lawyers, you may benefit from a boutique firm like Zoppi & Co.

Timeline: when is the deal due to complete?

If the deal is due to complete in less than 90 days, then the solicitors will need to prioritise your deal and treat it as a matter of urgency. This usually increases legal fees. Likewise, if a deal’s timeline is longer (120+ days), then the lawyers may be required to spend further time and, therefore, the legal fees would increase.

Comparing Indicative Quotes vs Fixed-Fee Services

When planning your budget for legal fees, understand the difference between indicative quotes and fixed-fee services. Indicative quotes provide an estimate based on available information but often lead to cost overruns. Fixed-fee services offer a clear, predetermined cost, reducing uncertainty.

The main advantage of fixed-fee services is financial certainty, allowing buyers to manage their budgets more effectively and avoid unexpected costs. Both options have their benefits and drawbacks, which we’ll explore in detail.

Indicative Quotes

Indicative quotes often lack transparency about possible additional charges, making them appealing for initial budget planning. However, unexpected costs can arise as these quotes may not account for complexities during the service. Some law firms provide indicative quotes but charge hourly, leading to potential costs exceeding the quoted amount.

While indicative quotes can help buyers plan their budgets, be cautious and consider the potential for cost overruns. Understanding these limitations helps make more informed decisions.

Fixed-Fee Services

Choosing fixed-fee services offers clients the advantage of knowing their total expenses upfront, aiding in financial planning. These arrangements eliminate misunderstandings about billing, as there are clear expectations about the costs involved. Fixed-fee services also encourage solicitors to work efficiently, as their remuneration is not tied to hourly rates.

The disadvantage of fixed fees is that they may initially appear higher than indicative quotes, but they tend to cover everything the buyer will need. Firms like Zoppi & Co offer fixed-fee services that include:

Drafting and negotiating heads of terms with exclusivity clauses;
Producing a legal due diligence (DD) questionnaire;
Conducting DD and producing a legal DD report;
Drafting and negotiating the sale and purchase agreement (SPA) to minimise your risks;
Drafting the ancillary corporate procedure documents to comply with the Companies Act 2006 including:
- Buyer board minutes to approve the purchase;
- Target board minutes to approve the sale;
- Share certificate indemnities if the seller has lost their share certificates;
- Stock transfer forms as instruments of transfer;
- Person with Significant Control (PSC) cessation letters for out-going shareholder/s;
- PSC notification letters for new shareholder/s;
- Powers of attorney to ensure you can exercise voting rights whilst the shares are being recorded as transferred;
- Director resignation letters to minimise risks of claims from outgoing directors;
- New director’s consent to act letters; and
- Completion agenda to ensure a smooth deal and timely completion.
Negotiating the disclosure letter to minimise risks of hidden issues;
Assisting with completing on the deal; and
Conducting post-completion procedural steps including:
- Updating internal statutory registers;
- Issuing new shares;
- Cancelling old shares;
- Appointing new directors;
- Removing previous directors; and
- Filing forms at Companies House.

How much do solicitors charge for buying a business

In summary, you are unlikely to find law firms that will charge less than £8,000 + VAT (assuming this will be a small, simple deal). Legal fees are more likely to be around £12,000 + VAT to £20,000 + VAT for deals where the purchase price is less than £2m. For deals of £2m and above, legal fees would be around 1% of the purchase price.

Zoppi & Co offers competitive, fixed fees. Below we give an indication of the legal fees assuming a medium-level of complexity, i.e.:

share purchase acquisition;
buying via a Special Purpose Vehicle;
granting the seller a debenture over the target, as a form of security (instead of a Personal Guarantee);
deferring part of the purchase price;
adjusting the purchase price according to completion accounts (eg: cash-free debt-free);
there are one to three sellers;
the target is not part of a group of companies;
the target is not regulated by an industry-specific regulator; and
the target completion date is approx. 90 to 120 days after the signing of the heads of terms.

The due diligence levels mentioned in the below tables (DD Level) refer to the Due Diligence Levels listed in the table further below (see section titled Due Diligence Levels).

Purchase price between £1m to £2m

Package	Details	Service fees (including deposit but excluding Success Fee)
Platinum	DD Level: No stone unturned. Deposit: £10,000 + VAT Success Fee: £10,000	£40,000 + VAT
Gold	DD Level: Cautiously optimistic. Deposit: £2,000 + VAT Success Fee: £5,000	£17,000 + VAT
Silver	DD Level: Fact check. Deposit: £2,000 + VAT Success Fee: £5,000	£15,000 + VAT
Basic	DD Level: None, N/A. Deposit: £2,000 + VAT Success Fee: £5,000	£8,000 + VAT

Legal fees for a deal with purchase price of between £1m to £2m.

Included at no extra cost to you:

Unlimited time spent negotiating the SPA, disclosure letter and ancillaries.
Unlimited revisions on draft documents until 100% satisfied.
Unlimited calls, emails and other communications.

We are so confident in our packages that we offer a price-match guarantee: we will match, pre-engagement, any like-for-like quote.

Due Diligence Levels

The due diligence process is a critical part of the business purchase process, involving thorough checks to ensure the target business is as it appears. Some law firms may offer different legal due diligence packages, allowing buyers to choose options that fit their budget and risk tolerance.

Zoppi & Co, for instance, offers three main due diligence packages to cater to different needs and complexities, although bespoke due diligence packages can be offered upon request.

Level	Details
No Stone Unturned	For buyers who are risk-averse and want the Rolls-Royce service delivered by multiple specialists. Chosen by buyers of unconnected companies, when the transaction is more complex or higher-valued. We will ask up to 100 questions as part of our due diligence from the below DD areas: – Everything in Cautiously Optimistic PLUS – Accounting and tax; – Marketing & PR; – Real estate & premises; and – Environmental compliance.
Cautiously Optimistic	For buyers who are cautiously optimistic. Chosen by buyers who have experience in the target’s industry, are familiar with the target or are less worried about potential issues. We will ask up to 40 questions as part of our due diligence from the below DD areas: – Everything in Fact Check PLUS – Insurance policies; – Intellectual property; – Loans and insolvency; – Data protection compliance; and – Material employment contracts.
Fact Check	For buyers who are confident with their decision. Chosen by buyers who have operated within the target (such as a manager of the target), have already conducted due diligence and the deal size is smaller. We will ask up to 30 questions as part of our due diligence from the below DD areas: – Commercial litigation; – Corporate compliance; – Asset purchase agreements; – Material supplier contracts; and Material customer contracts.

What if the deal aborts?

First, some law firms may offer to credit part of the fees you have paid towards your next deal. Zoppi & Co is proud to offer such an option.

Second, some law firms (including Zoppi & Co) offer to only charge you a portion of their fixed fee if the deal aborts, depending on the stage at which the deal aborted.

Third, some law firms (including Zoppi & Co) would only charge the base fee for the service, and not charge the Success Fee because the deal didn’t go through. Success Fees can be significant, but are only paid if you successfully bought the business. Thanks to the Success Fees being significant, Zoppi & Co can offer more competitive base fees.

Working with a Business Solicitor

Working with a business solicitor is crucial for navigating the legal complexities of buying a business. Solicitors provide invaluable assistance, from drafting and reviewing documents to advising on legal requirements.

A good business solicitor should offer guidance tailored to your specific situation.

Selecting the Right Solicitor

Choosing the right solicitor involves evaluating their transperancy, client satisfaction and customer service, and relevant expertise in business law. Checking online reviews, legal directories, and gathering referrals from trustworthy sources can help you find a qualified lawyer.

Confirm that the solicitor has relevant experience in corporate law.

Effective Communication

Maintaining clear and effective communication with your solicitor is critical for addressing any concerns and ensuring a smooth transaction. Establishing a comfortable rapport with your solicitor fosters better communication and helps navigate the process effectively.

Why choose Zoppi & Co

Five main reasons:

(1) 0-Delays Guarantee.

Don’t risk the deal falling through due to delays. I guarantee to act within hours, not weeks.

(2) 100% Fixed Fee Service.

Don’t get a surprise bill, and be charged for every email and call.

(3) Be one of only nine.

Don’t be 1 of 1000 cases. I won’t act on more than nine deals at any one time.

(4) £3m in Professional Indemnity Insurance.

Although I record 0 claims and 0 complaints, I understand your need for peace of mind.

(5) Prompt responses and quick communications.

Benefit from quick WhatsApp messages, effective video calls, and prompt emails.

Bonus.

A qualified solicitor (Malcolm) will handle every aspect of your deal, not a paralegal.

Summary

In summary, understanding the legal costs involved in buying a business is crucial for avoiding unexpected expenses and ensuring a smooth transaction. From solicitor’s fees to factors influencing costs, and the importance of due diligence, this guide provides a comprehensive overview to help you navigate the process.

By being informed and prepared, you can make better decisions and successfully manage the legal aspects of your business purchase. Remember, working with the right solicitor and choosing the appropriate due diligence package are key steps in this journey.

Frequently Asked Questions

How can I avoid unexpected legal costs when buying a business?

To avoid unexpected legal costs when buying a business, ensure you understand all fees from the outset, opt for fixed-fee services where available, and maintain clear communication with your solicitor regarding the scope of their services. This proactive approach will help manage costs effectively.

What factors influence the legal fees for buying a business?

The legal fees for buying a business are influenced by factors such as the complexity of the transaction, the size of the deal, the location of the law firm, and whether communications and negotiations are billed separately. Understanding these factors can help you anticipate and manage legal costs effectively.

What is the difference between an indicative quote and a fixed-fee service?

The primary difference lies in cost certainty; an indicative quote is an estimate that may vary, while a fixed-fee service guarantees a set price for legal services, ensuring financial predictability. Thus, a fixed-fee service may be preferable for those seeking stability in budgeting.

How do I choose the right business solicitor?

To choose the right business solicitor, evaluate their experience, reputation (reviews), and expertise in business law, while also reviewing feedback and gathering referrals. Preparing specific questions for initial meetings will further assist in making an informed choice.