Founders ask about price first, tax second, and their people third. In a professional services firm that is the wrong order, because the people are the reason the price holds. A fee book is a set of relationships, and relationships walk.
The mechanics of what happens to your team are also less well understood than almost anything else in a practice sale — largely because the answer depends on a structural choice most sellers make for tax reasons without realising it decides the employment position too.
TUPE — the Transfer of Undertakings (Protection of Employment) Regulations 2006 — applies where the identity of the employer changes.
On a share sale, it does not change. The company that employed everybody on Friday is the same company on Monday; only the shareholders are different. Every contract of employment continues untouched, nobody transfers anywhere, and there is no statutory consultation duty. That is the position in most incorporated practice sales.
On an asset sale, where a buyer acquires the business and the fee book rather than the shares, the employer genuinely does change. That is a business transfer, TUPE applies, and employees assigned to the business move automatically to the buyer on their existing terms with continuity of service preserved. Sole traders and traditional partnerships selling a fee book are almost always here, and so are firms selling a discrete book rather than the whole practice.
Where TUPE does apply, three consequences matter to a seller. Terms cannot simply be harmonised downwards to match the buyer's existing staff. A dismissal for a reason connected with the transfer is automatically unfair unless there is an economic, technical or organisational reason entailing changes in the workforce. And both the outgoing and incoming employer must inform and consult appropriate representatives, far enough ahead for the consultation to mean something.
That last duty carries real money behind it: a tribunal can award up to 13 weeks' uncapped gross pay for each affected employee where an employer fails to inform and consult. For transfers completing on or after 1 July 2024, an employer with fewer than 50 employees, or one transferring fewer than 10, may consult employees directly rather than through elected representatives — which covers the great majority of practice deals and removes the most common excuse for leaving it late.
Here is the gap that catches founders. Members of an LLP and partners in a traditional partnership are generally not employees, so TUPE does not protect them. The people whose departure would do the most damage to the deal are the people outside the statutory machinery entirely.
What governs them is the members' or partnership agreement, the restrictive covenants inside it, and whatever the buyer puts on the table. That is a negotiation to open early, not a conversation to have after heads of terms are signed. A buyer pricing a firm on the assumption that two client-holding partners stay will want that assumption documented, and if it cannot be, the price moves before you ever get to legals. Our note on where the price gets chipped in due diligence covers how that plays out in practice.
Deferred consideration in practice deals is normally tied to retention of the fee base. That structure moves the cost of staff departures onto the seller, and the arithmetic is unforgiving.
Take an illustrative firm sold on recurring fees of £1.2m at one times fees. Sixty per cent, or £720,000, is paid at completion; £480,000 is deferred over two years against retention of the book. A client-holding manager resigns in month four and £180,000 of fees leave with them over the following year. That is 15% of the fee base, so 15% of the deferred element — £72,000 — never reaches the seller.
The buyer loses margin on £180,000 of fees. The seller loses £72,000 of price, on a decision taken by someone who no longer works for them, in a business they no longer control. That asymmetry is the whole reason retention planning belongs to the seller and belongs before the process, not to the buyer and after completion.
None of this changes what your firm is worth on paper. It changes how much of that number you actually collect, which is a different question and usually a larger one. Our note on how accountancy practices are valued sets out the multiple; this is about whether you keep it.
It depends entirely on how the deal is structured. TUPE applies where the identity of the employer changes. On a share sale it does not, because the company that employs everybody on Monday is the same company that employed them on Friday — only the shareholders have changed, and every contract of employment continues untouched. On an asset sale, where a buyer acquires the business and the fee book rather than the shares, the employer does change, TUPE applies as a business transfer, and staff move automatically to the buyer on their existing terms with their continuity of service preserved. Sole traders and partnerships selling a fee book are almost always in the second category.
Not under TUPE, because members of an LLP and partners in a traditional partnership are generally not employees, and TUPE protects employees. The people whose departure would damage the deal most are therefore the ones outside the statutory protections entirely. What governs them is the members' or partnership agreement, any restrictive covenants in it, and whatever new arrangement the buyer offers them. That is a negotiation, not an automatic transfer, and it needs to be started well before exclusivity rather than presented to them once heads of terms are signed.
If TUPE applies, you must inform and consult appropriate representatives long enough before the transfer for consultation to be meaningful, and both the outgoing and incoming employer have duties. For transfers completing on or after 1 July 2024 an employer can consult employees directly where it has fewer than 50 employees, or where fewer than 10 employees are transferring, which covers most practice deals. Getting it wrong is expensive: an employment tribunal can award up to 13 weeks' uncapped gross pay for each affected employee. On a share sale there is no statutory duty at all, which is a legal answer, not a commercial one.
Where TUPE applies, changes to terms and dismissals for a reason connected with the transfer are heavily restricted. A dismissal for a transfer-related reason is automatically unfair unless there is an economic, technical or organisational reason entailing changes in the workforce, and harmonising terms downwards to match the buyer's existing staff is exactly the sort of change the regulations are designed to prevent. On a share sale none of that machinery applies, because there has been no transfer — the buyer simply inherits a company and manages it, subject to ordinary employment law and to whatever the contracts already say.
Usually more than it costs the buyer, because deferred consideration in practice deals is normally linked to retention of the fee base. Take a firm sold on recurring fees of £1.2m at one times fees, with 60% paid at completion and £480,000 deferred against fee retention over two years. If a manager leaves in month four and £180,000 of fees follow them out, that is 15% of the book, and 15% of the deferred element is £72,000 the seller does not receive. The buyer loses margin; the seller loses the price. That asymmetry is why retention planning belongs to the seller.
Sources: the Transfer of Undertakings (Protection of Employment) Regulations 2006 govern business transfers and service provision changes, as summarised in the GOV.UK guidance on business transfers, takeovers and TUPE and in Acas guidance on informing and consulting. The direct-consultation route for employers with fewer than 50 employees, or transfers of fewer than 10 employees, applies to transfers completing on or after 1 July 2024. The maximum award for failure to inform and consult is 13 weeks' uncapped gross pay per affected employee.
This article is general information about how employment obligations and deal structures interact on a practice sale, not employment, legal, tax or investment advice, and Founder Capital LLP is not authorised or regulated by the Financial Conduct Authority. Nothing here is an offer or invitation to invest; any investment opportunities we reference are available only to professional investors, certified high-net-worth individuals and self-certified sophisticated investors, are not open to retail investors, and capital is at risk and returns are not guaranteed. The figures above are illustrative and your own will differ, so please take specific advice from a qualified employment solicitor and corporate adviser before you act.
