Liability and run-off

Advice does not stop being your advice when you sell the firm. A complaint about a pension transfer or an investment recommendation can arrive years after the meeting that produced it, long after the client has become someone else's client and you have stopped trading. That long tail is the single feature that makes selling an advice business different from selling most other small businesses, and it is why a sale agreement spends more of its pages on the past than on the future.

The legal shape of the deal decides where the tail sits. In a share sale the liabilities travel with the company, so the buyer inherits them, prices them, and protects itself with warranties and indemnities that reach back to you personally. In an asset sale the liabilities stay behind in your company, which is why that company cannot simply be closed down the week after completion. Either way the exposure remains yours in substance for a period. The difference is whether it reaches you through your own company or through a clause in someone else's agreement.

Professional indemnity cover is written on a claims-made basis, which means it responds to claims made while the policy is live rather than to advice given while it was live. Stop paying and the cover stops, whatever year the advice belongs to. Run-off cover is the policy that fills that gap once you cease trading, and it is a genuine cost that belongs in your budget for the proceeds rather than in a surprise the following spring.

Warranties and indemnities are where the negotiation slows down. You are asked to state that things are true, the buyer relies on those statements, and disclosure is how you avoid promising more than you actually know. Caps, time limits and money held back in escrow all follow from how much comfort the buyer needs about the file history it is buying, which is another way of saying they follow from how good your records are.

Running alongside all of this is the regulator. The FCA expects client transfers to be handled with the client's interests in front, permissions to be dealt with properly and any wind-down to be orderly. A tidy commercial deal that leaves clients unsure who advises them is not a tidy deal. The articles below work through each part in turn.