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Buying or Selling a Business
How We Can Help
We can help guide you through all phases of a business sale or purchase. More importantly, perhaps, we can serve as the focal point for the sale or purchase. You may need expertise beyond a legal and tax advisor (such as a business or real estate broker, business appraiser, or accountant), and we have relationships with firms that have the requisite skill and expertise. As such you do not have to spend valuable time and expense looking for competent and reputable professionals thus freeing you to concentrate on the business terms and conditions for your sale or purchase.
While we will advise you on the legal and tax issues regarding the business sale or purchase, our ultimate goal is to help you achieve your business and financial objectives while minimizing the tax impact and avoiding unforeseen legal complications. As is often the case in business transactions, it is what you don't' know that can be most damaging.
As your legal and tax advisor, here are some of the issues for which we can provide counsel and guidance:
Selling a Business
- Preparing your business for sale. This can include examining all supplier and customer contracts to ensure continuity and validity, documenting company policy and procedures help ensure a smooth transition for the buyer, review your real estate leases, or title to real estate you own, analyze equipment leases, and reviewing employment contracts and obligations.
- How to structure the sale of the business. This will vary depending upon the legal structure of the business, whether real estate is part of the sale, whether assets or stock is being sold, whether there is seller financing, the tax impact, and last but not least your plans "after" the sale.
- Estate Planning and Succession issues. A sale or transfer of a business to family members involves unique issues that need to be addressed to ensure a successful transfer.
- Screening buyers for the business. If you do not already have potential buyers with whom you are familiar, you want to screen out less that serious or able buyers and a properly drafted "Expression of Interest " document can greatly aid that effort. Also a confidentiality agreement is essential to protect valuable information you may have to share with potential buyers.
- Making a complete disclosure of all legal, tax, and financial issues facing the business. You do not want to provide any basis for a buyer rescinding a purchase or a future legal action.
- Tax concerns when selling business. The amount of tax you will owe will depend upon the internal structure of your business and how you structure the sale. An asset sale will have one set of tax consequences and a stock sale will have a much different set of tax consequences. You will want to structure the sale as to minimize the tax impact.
- Key Contract Provisions. Your terms of purchase or Sales Contract should cover at least the following broad legal areas: payment terms, obligations of the parties, conditions either party must satisfy to complete the sale, what constitutes a breach of the agreement and the consequences of such a breach, and limitations of liability section that limits the type and/or amount of liability for which either party will be responsible.
- Negotiation. Driving the sale to terms most favorable to you will undoubtedly require extensive negotiation with the buyer and an understanding of the legal and tax issues affecting the buyer.
Buying a Business
- Issues to consider when buying a business. Some of the broad issues you should consider are: do you want to purchase an existing business or a new business, do you want to purchase assets or stock, should you sign a Letter of Intent (many sellers will ask for this), do you need financing and how should the financing be structured (from the seller or financial institution), and how to negotiate with the seller.
- Knowing when not buy a business. Buyers can sometimes be best protected by being counseled not to buy a business. The knowledge requisite to deciding when not to purchase a business comes only with complete legal and financial due diligence (see next)
- Due Diligence. Due diligence means learning as much as possible about the legal and financial aspects of a prospective business acquisition. This will include examining key contracts, past tax returns and tax records, financial statements, employment agreements, minutes and all records of the business, confidentiality agreements, corporate charter and bylaws, litigation related documents, any patents, copyrights, or intellectual property-related documents, and licenses and permits for operating the business.
Conducting due diligence will help a buyer avoid paying too much for a business, misunderstandings of the type and condition of the business being bought, future financial problems with the business, pending or future lawsuits, and contingent liabilities.
Assisting in the due diligence process is where a lawyer can be most valuable to a prospective buyer.
Tax considerations
While there are generally no income tax liability arising on the purchase of a business, the way the purchase is structured will determine the future tax impact. An asset purchase will have vastly different tax consequences from a stock purchase and the different tax impact should be considered in setting the purchase price and in the negotiation.
Note: While there is no income tax incurred on the purchase of a business, states and localities may impose transfer taxes. Also it is important for a business to be aware of any state and multistate sales tax impact from operating the business.
- Drafting a purchase agreement. The purchase agreement should contact certain key contract provisions. Your terms of purchase should cover at least the following broad legal areas: payment terms, obligations of the parties, conditions either party must satisfy to complete the sale, what constitutes a breach of the agreement and the consequences of such a breach, and limitations of liability section that limits the type and/or amount of liability for which either party will be responsible.
- Real estate considerations. If you plan to lease space for the business either the seller's current lease or the landlord's lease must be reviewed and/or negotiated. If the space is being purchased, then all legal aspects of the purchase must be addressed.
- Negotiation. Ensuring a purchase on terms most favorable to you will undoubtedly require extensive negotiation with the seller and an understanding of the legal and tax issues affecting the seller.
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