Buying or selling even a small business is a big decision, and one that certainly shouldn’t be taken lightly. Just as you’d retain a real estate lawyer when buying or selling a home, it’s important to have an experienced business lawyer on your side when buying or selling a business. Here’s why.
Understanding the types of business sales
Generally speaking, the purchase or sale of an incorporated company will take one of two forms:
- In an asset purchase, the buyer acquires some or all of the seller’s business assets, such as real property, equipment and inventory. This type of sale generally favors the buyer because the buyer does not take on any debts or liabilities.
- In a stock purchase, the buyer acquires most or all of the seller’s stock in the company, effectively stepping into the seller’s shoes. This type of sale generally favors the seller because the seller’s debts and liabilities associated with the business are transferred to the buyer.
While the overall process of buying or selling a business is similar regardless of the structure of the transaction, there are different considerations that both the buyer and seller will need to take into account depending on the type of transaction.
A lawyer can advocate for your interests throughout the process
In both asset and stock purchases, the sale of a business begins with an investigation. At this stage, the buyer needs to investigate the seller to determine the true value of the business or its assets. Due diligence is important at this stage, especially in stock purchases because the buyer needs to understand the debts and liabilities in addition to the assets. An experienced attorney can help you thoroughly investigate the business you are considering buying.
At the same time, the parties should move into preliminary negotiations. In addition to the purchase price, the buyer and seller need to discuss logistical aspects of the transfer of ownership, such as getting required approval from shareholders, acquiring third-party or government documents, taking over contracts and retaining key employees. An attorney can review important contracts and agreements to make sure the purchase or sale is feasible and help to draft a letter of intent that sets working terms as you move toward the deal, such as a promise not to negotiate a sale with another prospective purchaser.
Once these negotiations are complete, the deal moves into a formal agreement that includes all the details of the deal. The formal agreement should explain the purchase price, the terms of the sale, the specific business or assets to be turned over and whether those assets will be held in escrow, among other important terms. It is critically important to have this agreement and other supporting documents reviewed by an attorney to make sure you are actually getting the deal you want.
Finally, the deal moves to closing. This is the formal completion of the purchase and sale, and it’s exceptionally paperwork-intensive. All documents need to be appropriately signed and notarized, funds need to be transferred in accordance with the agreement, and documents such as titles and deeds to property need to be appropriately recorded. Again, having an attorney represent you at closing will ensure that these documents are prepared properly.
Make sure you have an experienced, qualified business attorney
Your attorney’s job when buying or selling a business is to help minimize taxes, avoid potential liability and make sure you move forward on solid legal footing. The key is to have a lawyer who specializes in business law and has the experience and attention to detail needed to help you get the best possible deal. Retaining an attorney early in the process and continuing to consult that attorney throughout will protect your interests at every stage of the purchase or sale.