posted byBagasian LawNovember 4, 2020
How do you buy a business or sell one that you already own?
Many entrepreneurs choose to buy a business rather than build one from the ground up.
There are many advantages to buying a business, considering it is a less risky venture than starting your own business and has pre-established infrastructure.
In this article, you will learn about:
The buying or selling of a business is also described as a merger or acquisition .
An acquisition is when one company is bought by another, while a merger is when two businesses come together under one parent company, becoming a separate entity.
Mergers and acquisitions have major financial and legal implications.
For example, once an acquisition takes place, the company that has been purchased ceases to exist legally, meaning the stock of that company can no longer be traded.
Partner Buyouts take place when a business partner chooses to leave the company, whether to retire or begin a new venture.
In order to prevent any legal complications, the partners need to define what their company is valued at, either by negotiating this value by themselves or having a third party appraise the company.
Partner buyouts often require assistance from a lawyer to ensure all documents and liability is transferred to the buying partner. Since the legal implications of dissolving a partnership differ by state, it is even more crucial to get legal advice.
Once an entrepreneur has chosen what business they wish to purchase, the next steps are as follows:
First, the buyer and seller must agree on a price for the business, which has the potential of influencing the success of the deal.
If the entrepreneur is informed on prices in that industry, then they might make an offer without outside consultation. However, an entrepreneur can also choose to consult an appraiser or investment banker to help determine the purchasing price.
Next, after consulting with a lawyer, the buyer must decide on a “deal structure.” Variations of this include mergers, stock purchases, and asset purchases.
Once the price and deal structure is negotiated, the buy and seller must both sign a Letter of Intent (LOI) . The letter outlines anything discussed and agreed upon by the two parties, such as the purchase price, the deal structure, and how long it is expected for the deal to close, to name a few.
The LOI is not a legal document and cannot be used for litigation in the future. However, it outlines the general implications of the deal and how it will function moving forward.
Next, the buyer must conduct what is called due diligence, which is extensive research on the company that is being purchased. Its purpose is to outline anything that the buyer may be liable after purchasing the company. These liabilities could include financial liabilities or past / ongoing litigation.
Due diligence reveals a lot about the company and can result in the buyer pulling out of the deal or asking for a lower price.
The next step in legally purchasing a business is having the buyer’s lawyer draft the purchase agreement. This legally binding contract is signed by both parties and includes who is engaging in the sale, the price, and the closing date.
Before the deal can close, the buyer must acquire any third-party approval, such as that from landlords or shareholders, and complete contracts that would supplement that. This also includes any consent that needs to be obtained from a third-party.
Finally, all necessary exchanges need to be made, such as payments and any contracts or paperwork, and the deal will be closed.
The legal documents necessary for purchasing and selling a business differ depending on the nature of the sale. We will describe some of the most common:
A Non-Disclosure Confidentiality Agreement or Business (Sale) Non-Disclosure ensures that the business’s financial information, such as the purchase price, and trade secrets remain confidential even after the business is purchased.
A Personal Financial Statement Form is completed by the buyer, as proof that they have the finances to support the purchase.
An Offer-to-Purchase Agreement is written before due diligence and contains all of the details of the sale, including the offer price, the deposit amount, and the date of the offer.
The Business Purchase Agreement is signed at the time of closing, after due diligence, and officially transfers the business to its new owner.
Selling or buying a business has many legal requirements. Hiring legal representation ensures your merger, acquisition, or partner buyout is carried out legally. An experienced business attorney will provide strategic guidance , help draft contracts and ensure the success and safety of your business.
Los Angeles-based lawyer, Alina Bagasian, will provide the best legal services for your business. Possessing an understanding of corporate and commercial business, Alina Bagasian is ready to represent your business and provide you with excellent legal advice.
The Law Offices of Alina Bagasian have achieved 100% client satisfaction, providing clients with unlimited advice, and offering eight different services to avoid any legal complications when buying or selling a business.
Get the help you need today!