Buying/Selling a Business
The process of buying or selling a business can be an exciting time! It’s exciting for a seller because it’s the achievement of a goal you set. It’s exciting for a buyer because of all the potential that you see and the ideas you may already have to improve the business. But … it’s usually an intimidating time as well. You aren’t sure how everything works and you don’t know what to expect. That’s why it’s helpful to have an experienced attorney guide you through the process and explain the mechanics of the sale. It’s important to know your choices, the pitfalls (there are many) and what would be best for you given the situation. No matter if you are a buyer or a seller, you need to make informed decisions and feel confident in getting the deal done right.
Frequently Asked Questions
What issues should I be aware of when buying or selling a business?
Whether you are buying or selling a business, some mistakes to avoid are:
- Not reading the contract thoroughly or not understanding it completely.
- Not doing your due diligence. Buyers and sellers have investigations to conduct.
- Not having an attorney and a CPA to look out for you and to help mitigate risks.
- Not advocating for yourself during negotiations or having a “just get it done” attitude.
Without an attorney, these pitfalls can be easy to fall into because it’s human nature. That’s why its so essential to have an attorney involved to guide you, support you, educate you and be a buffer, if necessary. You don’t want anything to slip through the cracks. You want to know what you’re getting into.
What’s the difference between an asset sale and a stock sale?
In an asset sale, the seller will sell the “insides” (assets) of the business but not the “container” (corporation or LLC) itself. The assets transfer into a container owned by the buyer. The “Seller” is not a human, but rather it’s the corporation or LLC that is selling its assets. Similarly, the “Buyer” is not a human, but a different corporation or LLC that is receiving the assets.
In a stock sale (for a corporation) or an interest sale (LLC), the buyer is purchasing the seller’s “container” (corporation or LLC) and everything inside of it. The “Seller” is the human or humans that own the container. The “Buyer” is the human or humans that will become the owner(s) of the container. The container stays the same, regardless of who owns it. That can be good for consistency, but there can also be more risks with this type of sale. Sometimes, given the circumstances this is the only way to transfer a business.
It’s important to determine which type of sale from the beginning, since the agreements and documents are different for each type.
What are the stages of a purchase/sale?
Deals can take all shapes, but generally speaking there are four stages to purchase and sale of a business. First, the letter of intent or term sheet is exchanged to make sure the buyer and seller are in agreement of the basic terms. Second (or Third), a Purchase agreement is drafted to document all the details and make sure everything is covered. Third (or Second), due diligence is conducted by the buyer to learn more about the business and see how it works – and also during this time, the buyer and seller start working together to plan for the practical realities of transitioning the ownership. Last, at closing everyone sits down and signs the paperwork to actually transfer title and ownership of the business to the buyer.
Focus on these specific areas in your business to build stronger legal infrastructure:
The type, organization, structure, and governance of your business is the most basic aspect of your foundation.
Many service professionals are governed by specialized rules and regulations in addition to general regulations.
Having direct, honest relationships with your clients is the key to repeat business, referrals, and long-term success.
When you’re the client, understanding the agreement and how the relationship should work is critical.
Relationships with an employee or independent contractor need to be defined to protect your business and clients.
Without structure or guidelines to establish expectations and accountability, business partners can pose a high risk.
An important part of protecting your brand is making sure your trademark rights are in place.
Copyrights capture a broad range of things you create for your business or for your clients.
Check out our journal posts below for more information on this topic:
Here’s what our clients who came to us to buy or sell a business are saying:
“The Legal Department’s flat fee approach provided us great peace of mind during the due diligence process of selling our business. Lauri not only answered, but educated us as we asked a multitude of business transaction questions.”
“This group helped me sell my business in a speedy, efficient and professional way. I felt I was cared for through the whole process. Reach out to them to discuss your situation, you will be very glad you did.”
“Wow! I can’t say enough about the Laurie and The Legal Department. I used them to finalize contract negotiations when I sold my business. If you are selling a business, you can’t do any better than this great team!”