Many different situations can lead to a business sale or purchase. A company's owner may want to exit the business and move on to something new. An entrepreneur may want to purchase a business that is already in full operation rather than start their own business from the ground up. One business may merge or acquire another business. For each situation, there are specific legal requirements that must be satisfied. Failure to adhere to the legal requirements may result in frustrations that impede the sale or purchase of a business. Working with a business law attorney will ensure that your business sale or purchase transaction is completed successfully.
At the Law Office of Jennifer M. Settles, legal representation is provided to startups, business owners, buyers, sellers, partners, and shareholders. Whether you want to purchase or sell a business, Prime Legal will guide you through all the steps and proactively address any legal issues. Call us at 602-617-3938, or connect through our online form, to schedule a FREE initial consultation to make sure the right procedures are followed.
The Process to Buy or Sell a Business
Despite the size of the transaction, buying or selling a business can be complex. While the specific process varies depending on the circumstances, some key steps in the sale process exist. Some key steps include the following:
1. Business Valuation
Both parties should obtain an independent valuation of the business before advertising a business for sale or making an offer. A valuation helps the seller price the business appropriately and gives the buyer a basis for negotiations. A business broker is typically well suited to prepare a business valuation.
2. Preliminary Negotiations
Before agreeing on the sale of a business, buyers and sellers enter preliminary negotiations over key terms. This includes the price, transaction structure, other material terms, and any preconditions of sale. Key terms are often reflected in a non-binding letter of intent ("LOI") or term sheet.
3. Due Diligence
A very important step of the process for a buyer is due diligence, to confirm the commercial value, legal compliance and viability of the business. Usually done with the assistance of a business attorney and other specialists, due diligence involves conducting a highly detailed review of the financial records of the business and other commercial and legal documents.
4. Negotiating and Drafting Necessary Documents
Buying or selling a business involves a number of transaction documents, often including the following:
- Letter of intent
- Purchase and sale agreement
- Bill of sale
- Assignment of contracts
- Promissory note and security agreement
- Nondisclosure or confidentiality agreement
- Non-compete agreement
- Transition services or consulting agreement
A business lawyer can provide critical advice and assistance with negotiating terms and drafting the documents.
5. Pre-Closing Review
In a pre-closing review, the parties confirm that all of the required steps have been taken. This includes ensuring any necessary consents and approvals have been obtained (such as those needed from landlords, lenders and/or suppliers), and that all conditions to closing have been satisfied.
The transaction is typically closed when the buyer pays the agreed purchase price and the seller delivers the documents and assets required to effectuate the legal transfer of the business.
What's the Business Worth?
An independent business valuation is an essential step for both the seller (to ensure they're seeking a realistic price) and the buyer (to make sure they don't overpay).
While it's possible to run some general numbers yourself, many people seek the services of a professional business appraiser to value the business. Business valuation can be a complex process with several different ways to approach it.
A business valuation typically considers a number of factors and business operations, including:
- Business assets
- Projections for future earnings
- Book value
- Other financial metrics
- Business debts and liabilities
Of course, getting the best and most accurate appraisal will benefit both the seller and the buyer.
Three Legal Issues to Consider When Selling a Business
If you're selling a business, you should be aware of potential legal issues that may arise. Some common issues often involve the following:
- Confidentiality agreement. During the due diligence process, the buyer needs to have full access to the business's financial and other records. Sellers should always require the buyer to sign a confidentiality agreement before allowing them to view any proprietary or confidential information.
- Indemnification. The buyer may ask the seller to indemnify the buyer or take financial responsibility for claims arising from an event that occurs before the close of the sale, or for breach of representation or warranty. Indemnification provisions can vary drastically and can have significant consequences to both parties. They must be negotiated and drafted with great care.
- Continued employment. Buyers will often ask a seller or key individual to stay on with the business for some time after the sale to assist with the transition. The specific terms, including compensation, scope of services and duration of the engagement, must be set out in a written agreement.
There are numerous other considerations when selling a business, aside from the three topics listed above. It's important to seek advice from a business attorney on these issues.
Three Legal Issues to Consider When Buying a Business
If you are in the market to purchase a business, there are numerous legal issues to consider. Some important issues include the following:
- Non-compete agreement. You may want the seller (and/or its principals) to sign a non-compete agreement to prevent them from immediately opening a competing business. The non-compete agreement must be in writing and must clearly describe the duration and scope. An over-broad non-compete covenant may be unenforceable, and enforceability varies by jurisdiction.
- Assets included in the purchase agreement. In an asset purchase deal, the assets being purchased must be clearly described in the documents, to ensure that they are in fact included within the sale.
- Due diligence. Due diligence involves the thorough research into the target company and its principals, including financial results, commercial prospects, legal compliance and more. Due diligence is a complex and potentially lengthy process that should be undertaken with the assistance of qualified professionals to ensure that nothing is missed.
Again, the purchase of a business is a highly complex process, and involves far more considerations than the three items listed above. A business lawyer is best placed to provide advice on dealing with these issues. Contact the Law Office of Jennifer M. Settles today for assistance, at (602) 617-3938 or through the Contact Form at www.jsettleslaw.com. The initial consultation is always FREE.
How Will a Business Lawyer Help When Selling or Buying a Business?
Whether you're a seller or a buyer, a business lawyer can help you navigate the transaction and potential legal issues that may arise. A business lawyer can represent your interests during the negotiation process, and ensure that all sale documents are drafted correctly and are legally binding.
Importantly, a business lawyer can run the necessary due diligence on the sale thus reducing the likelihood of any business disputes from arising in the future, and can facilitate the overall closing process.
Contact Prime Legal Freelance Today
If you are planning to purchase or sell a business, Jennifer M. Serttles, Esq. can provide legal help throughout the transaction , as well as your next steps after the transaction has closed. Jennifer will ensure that you have fully considered all the legal matters that must be addressed or may arise in a purchase or sale of a business. Contact Jennifer Settles today either online by using the online form at www.jsettleslaw.com, or calling 602-617-3938 to schedule a FREE initial consultation.
Jennifer M. Settles, Esq. is a corporate lawyer at the Law Office of Jennifer M. Settles. Jennifer advises clients on M&A transactions, commercial contracts, real estate matters, financing transactions and corporate law.
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