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Buying or Selling a Business: Highlighting What You Need to Know

Posted by Bray Dohrwardt | Mar 06, 2024 | 0 Comments

Buying or selling a business can be very complex, with many contractual points. Below are some critical highlights you want to know when purchasing or selling a business. To learn more, see the Firm's buying and selling page. If you need legal help buying or selling a business, contact the Dohrwardt Law Firm. 

Purchase Agreement: This is the most essential document for your business transaction. It outlines the terms of the sale, including the purchase price, payment terms and conditions, who is on the hook for specific issues that may arise, and many more points. There are many types of agreements depending on the structure of your deal. If you buy the entire business, you will structure the agreement much differently than buying just some or all of the business's assets.

Due Diligence: Due diligence looks at everything involved with the business. This is the business buying equivalent of looking under the hood, kicking the tires, and spotting leaks. This is the buyer's opportunity to attempt to understand everything there is to know about the business or assets being purchased. Conducting due diligence on the business before signing any contract is essential. This will help parties identify potential risks or liabilities associated with the company, allowing both buyer and seller to negotiate better terms. This is your opportunity to identify specific issues that may arise and make clear whether the buyer or seller will be responsible for addressing these issues. 

Non-Disclosure Agreement: This document ensures that all confidential information the seller shares about the business is not disclosed to any third party. The buyer may also consider making this agreement bilateral so the seller is barred from sharing that you are a potential buyer or the details of what you are willing to pay for the business. 

Non-Compete Agreement: This document ensures that the seller cannot compete with the business for a specified period and location after the sale. Understanding the latest rules related to non-compete agreements is essential, as some states are increasingly hesitant to enforce them.

Employment Agreements: If the business has employees, the buyer must ensure that the existing employment contracts are transferred or that new contracts are implemented. The buyer will also want to understand whether there are benefits plans for which they may be liable. It is also essential to know whether any collective bargaining agreements may apply. 

Lease Agreements: If the business rents a property, the buyer must assume the lease agreement or implement a new one. Understanding the rights and obligations of a lease or other property is essential. This may also apply to vehicles and other equipment used in the business, from the basic copier to large manufacturing or packaging equipment.   

Intellectual Property: If the business has any patents, trademarks, or copyrights, parties will need to ensure that they are transferred as part of the sale. The buyer will also want to verify that all of the business's assets have clear title to intellectual property rights. This is a big watch out as it is not uncommon for former employees, contractors, or other companies to assert some right, triggering an expensive infringement fight. 

Tax Matters: You'll need to ensure that all taxes are paid up to the date of the sale and that any outstanding tax liabilities are disclosed. This can include payroll, property, unpaid sales, and other taxes.

Representations and Warranties: “Reps & Wars, Reps & Wars, Reps & Wars…” As your deal progresses, you will hear everyone using this term. But what are representations and warranties, and why are they important? Reps & wars are buyer's and seller's statements and promises related to the business. They can be from the seller regarding the condition of the business, including all known problems, etc. Reps & wars may also include statements from the buyer about your authority to complete the deal, financial ability to pay for the purchase, and how the buyer will treat employees you plan to employ after the closing. You'll need to ensure that the seller makes accurate representations and warranties to the buyer, as a breach of these reps & wars may trigger protections such as indemnification.

Indemnification: Indemnification is a pre-negotiated agreement on handling certain risks associated with doing the deal. For example, the seller represents no unresolved tax issues before the closing. What happens if there is a tax issue later? Here, the buyer may ask for indemnification that the seller will pay if the risk becomes a real issue. Indemnification provisions can be simple or complex depending on the deal and associated risks. They may include duties to indemnify, defend, and hold harmless. All three or a combination of these duties may be assigned to any identified risk and tend to be heavily negotiated. 

Closing Documents: These include all the documents required to transfer ownership of the business to you, such as a promissory note or other financing agreements related to the deal, bills of sale, assignment and assumption agreements, and stock certificates.

These are just a few contracting points to highlight when buying or selling a business. Working with a qualified attorney is essential to ensure your deal gets done correctly, that all the necessary documents are in place, and, most importantly, that your interests are protected throughout the transaction. See the firm's Buying or Selling a Business page to learn more. If you want help buying or selling a business, contact the Dohrwardt Law Firm to discover how the firm can assist you.

The information provided is only for general information and is not meant to be legal advice.  Information on this website, including third-party links, may not include the most up-to-date information, so you should contact your attorney to discuss your particular matter. Third-party links are provided for convenience only and are not an endorsement by the Dohrwardt Law Firm.

About the Author

Bray Dohrwardt

As an accomplished attorney with over 22 years of experience, Bray Dohrwardt has built an impressive career, enabling business growth and commercial success for many companies from start-ups to large corporations and nonprofits. He focuses his practice on business law and energy law.

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Bray Dohrwardt is licensed to practice law in Minnesota and Texas. Please contact the Dohrwardt Law Firm to discuss how the firm can help you get business done.

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