There are numerous issues important to Business Buyers or Business Sellers or both. Generally, Sellers are interested in:
● Sellers want to be that they will be paid, especially if payment of the purchase price is deferred.
● Sellers want to avoid the possibility that a Buyer will later make a claim because the business fails to meet a Buyer’s expectation.
● Sellers are often concerned about continuing liability to former customers, employees and vendors, and in the case of the sub-leasing the business location they often remain liable to the landlord until the expiration of the lease term.
● Sellers are often required to respond to Buyers’ due diligence requests that can be very burdensome with serious legal significance.
Generally, Buyers are interested in:
● Buyer’s usually want to avoid the Seller’s prior vendor, customer, employee and tax liabilities.
● Buyer’s want to be sure that they get what they are paying for.
● Buyers want to be sure that the Seller does not start competing for the same customers or use technologies and information that were part of the transaction
● When the location is important Buyers want to be sure that the commercial lease provides them the duration they require.
● Buyers want to be sure that key employees intend to stay with the business and/or if they leave, it is not a situation where they are capable of taking important customers with them. (Note that key employees who are not owners may in California compete against their former employer.
● Buyers may require assistance with respect to financing.
Other Considerations:
● if you are buying into an existing business or merging your business with another you will want to have investigated what the other party understands your role to be and how someone will share control over a business that they formerly ran themselves.
● If you are buying a Franchise you will likely be required to be approved by the Franchiser and sign an agreement with the Franchisor.· A Bulk Sale escrow is the purchase of the business assets but not the business.
● Sometimes when you sell your business an equally if not more important part of the transaction is your continuing relationship with the new owner as an employee or consultant.
● When there is a business broker involved in the transaction, especially when the broker is giving advice to both the Buyer and the Seller you may find yourself under pressure to finalize the transaction too quickly
When you are buying a Business there are usually related legal needs as well:
● Forming an Entity
● Commercial Lease
● Employees and Independent Contractors
● Standard Terms and Conditions
● Contracts and Agreement
● Trademarks and other intellectual property
Once you’ve agreed to purchase a business, you’ll need to formalize that agreement. This is typically done using a purchase agreement, which is a legal contract that outlines the details of the sale. (This may also be known as a business purchase agreement, asset purchase agreement, stock purchase agreement or something similar depending on the exact nature of the sale.) Attorneys for both the buyer and seller should work together to draw up the purchase agreement to ensure that it is fair to both parties.
The purchase agreement typically includes:
• Purchase price and method of payment
• Terms and conditions of the sale
• Representations and warranties of the seller
• Representations and warranties of the buyer
• Actions the seller has agreed to take prior to the sale (such as paying off existing loans or securing the resignation of employees who will not be employed by the new owner)
• Details of the business to be purchased, including a list of all assets, inventory, contracts and equipment
• A list of all existing creditors who are to be paid off with the proceeds of the purchase
• How much commission is owed to a business broker (if one was used) and who is responsible for paying that broker’s commission
• An agreement to resolve any disputes arising from the sale in a specific court of law or with a specific arbitration company
• Additional relevant documents known as exhibits and amendments
The exhibits may include items such as:
• Bill of sale
• A set of corporate documents including leases, financial statements, tax returns, accounts receivable and payable, articles of incorporation, bylaws and minutes
• An agreement that the seller will act as a consultant to the business, remain as an employee or agree not to compete with the business or operate in a particular territory for a certain period of time
• An escrow agreement, detailing the responsibilities of the escrow agent, if the purchase money is being held in escrow for a certain period of time
• Property deeds if the business owns real estate
• A promissory note if the buyer is paying the purchase price in more than one installment or paying the entire purchase price at a later date
• Assignment of leases and the landlord’s consent to the lease assignment
Questions for Your Attorney
An attorney who has experience working with business sellers and purchasers can help guide the process of creating a purchase agreement, and should give you peace of mind in knowing that no detail has been overlooked.
Among the questions to consider asking your attorney:
• Have you previously written purchase agreements?
• What red flags should I be aware of?
• How much do you charge for your services?