BUSINESS TRANSACTIONS

BUYING OR SELLING A BUSINESS

The purchase or sale of a business usually involves a large amount of money relative to the parties’ net worth. Therefore, it is a time to be especially careful in choosing the structure and processing of the transaction. The primary purpose of hiring an attorney when you are buying or selling a business is to minimize your liability. We provide guidance and counsel on issues including:

  • Determining whether the structure should be an asset sale vs. stock sale
  • Determining the tax consequences
  • Assisting with our client’s Due diligence on the nature, characteristics and condition of the business
  • Reviewing representations and warranties
  • Reviewing escrows, preparing bills of sale and verifying there are no liens under state law

Presale Process

Sellers need to understand each step in the selling process. Ideally, a seller will start working on the sale long before the business is offered. Actions required before the sale include:

  • Cleaning up financial statements
  • Protecting intangible assets like trademarks
  • Reducing personal expenses
  • Retaining key employees on a long-term basis

Most brokers will not place your business on a multiple listing service but will use different and more private channels to contact qualified buyers.

Purchase Documents

Often, at the beginning of the process, the parties will forego a formal offer document and prepare a letter of intent (LOI). The key to using a LOI is to obtain agreement on those important terms of the sale but not to get too detailed. Otherwise, the sale process will become delayed and negate the purpose of the LOI, which is to state the basic terms and facilitate moving on to the next step, which is due diligence and formal documents.

The purchase documents usually consist of:

  • Confidentiality agreement with the buyer (often set forth in the LOI)
  • An initial offer plus counteroffers
  • Escrow instructions
  • Promissory note
  • Security agreement
  • Bill of sale
  • List of assets
  • Covenant not to compete
  • Employment agreement for seller

When each party has a lawyer, it is the buyer’s attorney who usually drafts the first set of formal documents, since buyers have more concerns and will want many representations from the seller regarding the condition of the business.