Many different situations can lead to a business sale or purchase. A company's owner or partner may want to transfer ownership through a business succession plan. Entrepreneurs may wish to purchase a business already in the entire operation rather than start their own business from the ground up. One business may merge or acquire another company. For each situation, there are specific legal requirements that must be satisfied. Adherence to the legal conditions and deadlines may result in frustrations that impede the sale or purchase of a business. The Dohrwardt Law Firm will complete your business sale or investment successfully.
The Dohrwardt Law Firm provides legal assistance to startups, business owners, partners, and shareholders. Whether you want to purchase or sell a business, I will guide you through all the steps and proactively address legal or financial issues. Contact the Dohrwardt Law Firm to get your deal done.
The Process to Buy or Sell a Small Business
Buying or selling a business can take time and effort despite its size. While the specific process varies depending on the circumstances, some critical steps in the sale process exist.
Business Valuation
Both parties should obtain an independent valuation of the business before advertising a business for sale or making an offer. It helps the seller price the company appropriately and gives the buyer a basis for negotiations.
Preliminary Negotiations
Before agreeing on the sale of a business, buyers and sellers enter preliminary negotiations over critical terms. This includes, most importantly, price, the transaction structure, and any preconditions of sale.
Due Diligence
A vital step of the process for a buyer is due diligence to confirm the commercial value and viability of the business. Usually done by an attorney, due diligence involves conducting a detailed review of the business's financial records and other commercial documents.
Drafting Necessary Paperwork
Buying or selling a business involves a large amount of paperwork, including various legally binding documents, such as:
- Letters of intent
- Purchase agreements
- Bills of sale
- Assignment of leases
- Security agreements
- Nondisclosure or confidentiality agreements
- Non-compete agreements
A business lawyer can provide advice and assistance with drafting and negotiating the terms of these documents.
Pre-Closing Review
In a pre-closing review, the parties confirm all the required steps have been taken. This includes ensuring any necessary consents and approvals have been obtained – like those needed from landlords or suppliers.
Closing
The sale is typically closed when the buyer pays the agreed amount and the seller hands over any paperwork required for 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 several factors and business operations, including:
- Business assets
- Future earnings
- Capitalization
- 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. A few of the most common problems often involve the following three situations.
- Confidentiality agreement. During the due diligence, the buyer must have full access to the business's financial and other records. You should ask the buyer to sign a confidentiality agreement before allowing them to view this information.
- Indemnification. The buyer may ask you to repay the sale or take financial responsibility for any claims that come up from an event before the sale's close.
- Continued employment. Buyers will often ask a seller to stay on with the business for some time after the sale and assist with the transition. The specific terms of this should be set out in the sale contract.
It's essential 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 legal issues you should consider. Most of these issues involve one or all of the following matters.
- Non-compete agreement. You may want the seller to sign a non-compete agreement to prevent them from immediately opening a competing business.
- Assets included in the purchase agreement. All business assets must be expressly listed in the purchase agreement to ensure they form part of the sale.
- Due diligence. Due diligence is a complex and potentially lengthy process that a qualified professional should undertake to ensure everything is noticed.
A business lawyer is best placed to provide advice on these issues.
How Will a Business Lawyer Help When Selling or Buying a Business?
Whether you're a buyer or a seller, a business lawyer can help you navigate the transaction and any potential legal issues that arise during it. They can represent your interests during the negotiation process and ensure all sale documents are drafted correctly and legally binding.
Notably, a business lawyer can run the necessary due diligence on the sale and help prevent any business disputes from arising in the future.
Contact the Dohrwardt Law Firm Today
If you are planning to purchase or sell a business, Dohrwardt Law Firm can provide legal help throughout the transaction and your next steps after the transaction. I will ensure you have fully considered all the legal and financial matters that need to be addressed or may arise in the purchase or sale of a business. Contact the Dohrwardt Law Firm today.