Purchase or Sale of a Business
Are you considering buying a business? How about selling a business? Before you purchase a company make sure that you conduct your due diligence on the business and/or assets you will be purchasing. It often takes a lot of planning and preparation to buy or sell a business successfully.
Here are some recommendations to help you protect your investment:
- Seek Help from Experts. Hire an experienced attorney and an accountant to help you maneuver the complex legal, tax, and business considerations.
- Choose your Deal Structure. You should know what you are buying or selling. The structure of your deal is a very important consideration. There are benefits and risks to both the seller and the purchaser. Regardless of whether your deal is structured as an asset purchase, a merger, or a stock transaction (acquisition deal), know what you are getting into.
- Asset Sale/Purchase – The buyer acquires only specific assets and specific liabilities indicated in the purchase agreement. Buyers like this structure because they can pick and choose assets and liabilities they are willing to assume. Sellers could assume adverse tax consequences and outstanding liabilities depending on the agreement.
- Stock Purchase – The buyer purchases the target company’s stock from its stockholders. The target company remains intact (assets and liabilities), but with new ownership. The buyer must negotiate representations and warranties.
- Merger – Two companies combine to form one legal entity. The target company’s shareholders receive stock of the buyer, cash, or a combination of both. The buyer will acquire all of the target company’s assets, rights, liabilities, and will be unable to specifically identify which assets and liabilities it wishes to assume.
- Prepare Legal Documents. It is important to know the business you are selling or purchasing, and whether you should go through with the deal. Required paperwork (some require custom and tailored transfer paperwork) often deals with the type of asset for purchase or sale. There are important documents that need to be found, researched, reviewed, established, or provided. These can include confidentiality agreements, non-disclosure agreements, financial statements, operating agreements, employment agreements, lease agreements, tax returns, business plans, business valuations, real estate, offer-to purchase agreement, offer-to-sell agreement, and more depending on the type of business.
- Understand Taxes & Accounting Consequences. The structure you choose will also affect your tax liability and accounting. A seller often receives better tax treatment with stock deal structures where buyers often prefer asset sales tax. You are strongly encouraged to do advanced planning with tax advisers and accountants to make sure there are no surprises for both the seller and purchaser.
There are many things that could stop a purchase or sale of a business. These can include employee contracts, pensions, intellectual property rights, environmental issues, shared assets consents, liability transfers, and third-party approvals, tax considerations, unrealistic seller expectations, poor financial records, and more.
Buying or selling a business is a big deal. It is important to make informed decisions and protect your interests. KALIS, KLEIMAN & Wolfe reiterate the importance of working with an experienced attorney who can evaluate the business opportunity, expose potential risks and liabilities, and ultimately help you negotiate and close on the purchase or sale of your business.