Sale or Purchase of a Business

An experienced lawyer can assist you in structuring a sales agreement that maximizes your return and protects you from liability after the sale. Never sign a letter of intent prior to consulting an attorney.

Many business owners are approached by a prospective buyer who offers a “simple” letter of intent setting forward some “basic” terms. The buyer will suggest that the details will be worked out later and set forth in a formal purchase agreement. The danger is that, depending on the language in the letter of intent, the seller may have unknowingly signed a binding contract. Never sign a letter of intent without consulting an attorney.

If either or both the buyer and seller utilize the services of a business broker both parties still need the services of separate attorneys. The issues that are of primary importance to a seller of a business are usually:

  • Non-Disclosure agreement to be signed by the buyer
  • Receiving the purchase price at closing
  • No future liability for the business
  • Release from existing lease
  • Compensation for future services
  • Whether or not the buyer is financially qualified to purchase the business

Issues of Importance for buyers:

  • Disclosures of financial information and tax returns
  • Non-Compete agreement to be signed by the seller
  • Purchase/leasing of business location
  • Retention of employees
  • No liability for debts incurred by the business prior to the purchase
  • Obtaining the business name, phone numbers, websites, and customer lists
  • Training by the seller

Issues that are of mutual concern:

  • Allocation of the purchase price to various assets
  • Preservation of jobs for valued employees
  • Transitioning of customer base
  • Payment of employment, personal property and income taxes
  • Assignment of leases
  • Franchise Agreement / Restrictions / First Rights of Refusal

The controlling document of a sale or purchase of a business is a detailed contract that must be carefully drafted. A lawyer cannot represent both the buyer and seller. A client should never rush into a deal before consulting legal counsel. Most transactions will be Asset Purchase Agreements for small to medium sized businesses. Some will involve the purchase of stock of an existing entity. The parties need to seek the counsel of CPAs and attorneys to determine the most advantageous way to transfer a business.

A business sale that involves financing real property or franchise agreements will require additional drafting to address issues related to the assets being transferred and contingencies of the purchase.

Any business transfer has dozens of issues including retention of employees, tax basis of assets, assignment of leases and the disclosure to employees and the public.

The general rule is that a seller who carries a portion of a purchase price will receive a higher sale price, but will also run a much higher chance of seller default and litigation.

Money spent negotiating a contract that is well thought out and covers every issue is always beneficial.