Buying a limited company that is struggling: what comes with the shares
Buying a limited company means taking on its debts, tax arrears and claims. What to check before you agree a price, and how to fund a turnaround.
Reading time5 min read
CategoryBusiness guides
Written byThe bizbritain team
When you are buying a limited company, you buy its shares, and everything inside the company comes with them. That means its debts, its tax arrears, its contracts and any claims against it. A low price on a struggling company is only a bargain if you know what those liabilities are and who will pay them.
On 9 October the Insolvency Service said it had shut down a firm that arranged the purchase of about 226 struggling companies. The firm told their directors they could "walk away" with "no comeback". The Insolvency Service found it frustrated the legitimate claims of creditors. It is a useful warning for buyers as well as sellers.
Section 01
Who is liable for a company's debts after you buy it?
The company is. A change of owner does not change who owes the money.
So every unpaid supplier, loan, tax bill and wage claim stays on the company's books after completion. You pay the seller for the shares, and then the company still has to pay its creditors. In practice, that money comes out of the business you have just bought.
As a shareholder, you are not usually liable for the company's debts out of your own pocket. Personal guarantees are the exception. A guarantee the seller gave a lender or landlord stays with the seller until it is released. A lender funding your purchase will often ask you for a new one.
Section 02
Can a limited company be sold with its debts?
Yes. A share sale moves the company to a new owner, and its debts move with it. The sale does not clear them.
That is why a promise that a director can sell and walk away with no comeback should worry both sides. Creditors are still owed. Their claims and the conduct of the old directors can still be investigated.
A company that cannot pay its debts has proper routes. It can reach an informal agreement with creditors, propose a company voluntary arrangement, or go into administration. In administration, an insolvency practitioner can sell the business as a going concern. Our guide to buying a business in administration explains how that purchase works.
Section 03
What to check before buying a limited company
Ask for the evidence before you make an offer. A struggling seller may not volunteer it.
Who the company owes
Ask for a list of every creditor, what is owed and how late it is. Compare it with the bank statements.
What it owes HMRC
Check for unpaid VAT, PAYE and Corporation Tax. Ask whether any Time to Pay arrangement is in place, and whether it is being kept.
Charges on the company
Search the company on Companies House. The free record shows charges registered against it and any insolvency information.
Guarantees, leases and finance agreements
List every personal guarantee, lease and hire agreement. Find out which ones need the other party's consent to a change of owner.
Claims and disputes
Ask about any court claim, statutory demand or dispute with a customer, supplier or former employee.
Then use what you find. Your solicitor can protect you with warranties and indemnities from the seller, a lower price, or part of the price held back until the debts are settled. If the debts are too large to fix that way, buying the assets rather than the shares may suit you better. An insolvency practitioner can advise on that route.
Can you borrow to buy a struggling company? Sometimes, but a lender will want a plan, not just a low price.
Expect questions about how the existing debts will be dealt with, what you will change, and how the business pays its way after completion. Lenders also look at your own money in the deal and your experience of running a similar business. A clear creditor list and an honest forecast make that conversation much easier.
A turnaround deal is not one that every lender will look at. A business acquisition finance broker can take your plan across a wider range of lenders and tell you early what will be needed. Talk to us before you agree a price, not after.
This guide is general information, not financial advice. Applications are subject to status, affordability and lender criteria.
Got a question the guide didn’t answer? Talk to an advisor.
We’ve helped buyers fund deals from £25k to £10m across 100+ lenders. If you’ve read the guide and you’ve got a business in your sights, our advisors are on the phone now.