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Checklist for Legal Issues When Buying or Selling a Business

posted 4 months ago

By Kelly Bagla, Esq.

There are many legal issues to consider when buying or selling a business. It is a complicated and confusing process, so I created a quick checklist of legal issues to consider:

The Deal:
There are many variables that determine whether the deal is best structured as a stock purchase or an asset purchase. You must consider if the seller’s debt will be assumed by the new purchaser. You must consider if there are any encumbrances and liens on the assets preventing an asset purchase. You must consider possible regulatory hurdles, and you must consider securities laws and regulations implications.

Purchase Price:
The purchase price can be defined in many ways, for example: a lump sum of money being paid or received at the close of the deal, scheduled payments can be made via a promissory note with interest, stock in the business can be issued in exchange for money, or payments can be made from future sales. Before a purchase price can be set, it is probably wise to obtain a professional appraisal. These are sometimes costly, but an appraisal can help manage your expectations concerning what is a fair sale/purchase price.

What Type of Business is Being Bought or Sold:
How the deal is structured and how the deal is priced depends on what type of business is being bought and sold. The following considerations should be analyzed when make the decision to sell or buy a business:

• Is the business a turnkey currently operating business expected to keep running in much the same manner?
• Is the business currently operating but only some parts of the business are thriving?
• Is the business in decline?

Assets Defined:
How the deal is structured and priced depends on what assets are being bought or sold. The following assets should be part of the deal:

• Real property or leasehold interests
• Domain names
• Intellectual property like patents, trademarks, and copyrights
• Customer list
• Tangible assets
• Talented employees

Required Documents:
Whether the deal is structured as a stock purchase or as an asset sale, various issues must be resolved which include timing, due diligence, condition precedent, seller representations and warranties, and buyer representations and warranties. These issues should be clearly stated and addressed in the stock sale and purchase or asset sale and purchase agreements. Other documents that are customary in these types of deals are as follows:

• Noncompete agreements
• Confidentiality agreements
• indemnity agreements
• Bill of sale and assignment for tangible property
• Assignment of intellectual property

Becoming a business owner, you control your own destiny, choose the people you work with, reap big rewards, challenge yourself, give back to the community, and you get to follow your passion. Knowing what you’re getting into is smart business because the responsibility of protecting your business falls on you.

For more information on how to legally start and grow your business please visit my website at www.BaglaLaw.com

Disclaimer: This information is made available by Bagla Law Firm, APC for educational purposes only as well as to give you general information and a general understanding of the law, and not to provide specific legal advice. This information should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.

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