Legal Considerations When Buying A Business
Buying a business requires a significant undertaking during which you will want to do your best to protect yourself and navigate around risks and hidden issues. This will include hefty market research, financial analysis, and of course legal advice. Every transaction is unique, and there will be different considerations for different business types, but there are some general steps that each buyer should take when buying a business or assets.
Investigate Prior to Buying a Business
Once a buyer has decided to purchase a business, he or she should complete an intensive investigation (commonly called “due diligence”) into every aspect of the business before completing a purchase. This includes basic steps such as making sure the seller is the actual owner and if a government agency has closed the business, as well as more specific considerations such as:
- Scrutinizing the business’ books and financial records for accuracy
- Researching whether anyone has a claim, lien, or charge against the business or its assets
- Looking up whether the business is properly licensed and if those licenses are transferable
- Establishing the terms of any existing agreements to which the business is bound
- Researching whether the business has been recently sued
- Determining whether the business assets are in good working condition and under warranty
- Investigating whether there any problems with the business’ physical structure (i.e., mold, termites, non-compliance with government regulations, etc.)
The Sales Agreement
The actual business sales agreement should list everything that is being transferred to the buyer. This includes all service agreements, inventory, leases, intellectual property, equipment, licenses, and accounts receivables. The purchase agreement should also outline the actual logistics of how all these transfers will proceed.
Before buying a business and signing a purchase and sale agreement, consult with an attorney who can advise you and work with other experts (like tax advisors) to help determine how to hold the company, whether all due diligence was exercised, and if the sales agreement is sound.