5 Things to Consider When Purchasing a Business

Interested in selling or buying a business? Contact us today!

Interested in selling or buying a business? Contact us today!

Businesses are often sold. Many entrepreneurs dream of the day when they will expand their businesses to a point where they can sell them for a profit. Business transactions are complicated. There are too many factors for consideration to list in this brief discussion. However, I’ve outlined five main issues to consider in business acquisitions:

  1. Is the business being sold or are its assets being sold? There are two major ways to structure the sale of a business. A buyer may purchase the entire business. This involves acquiring all of its outstanding shares (in the case of a corporation), or all the transferable interests (in the case of a limited liability company). The other option is to acquire all of the business’s assets. This includes more than just the business’s land, equipment and inventory. The buyer must also acquire the intellectual property of the business, such as the business’s trademarks, copyrights, trade secrets, patents, goodwill and other proprietary information. Both types of acquisitions require the expertise of legal counsel.
  2. Are there liabilities that might affect the business? If the buyer purchases a corporate entity, he or she should be careful that the business does not have any outstanding lawsuits or liabilities. Once the corporation or company changes hands, it still exists as a separate legal entity. This means that even though a corporation may have new owners, it’s debts and obligations will survive the sale: if it owed taxes before the sale, it will owe the same taxes after the business is sold; if it was involved in litigation prior to the sale, the sale of the business won’t eliminate the lawsuit.
  3. Are there security interests which affect the assets of the company? If the buyer purchases a business’s assets, he or she should be sure that none of them are encumbered. In simple terms, the buyer should make sure that no one else owns the business’s property. Is the land affected by a mortgage? Does the business own property which has been pledged as collateral for a loan? An experienced attorney can conduct title searches to make sure a business’s land is not encumbered. An experienced attorney can also conduct a UCC filing search to make sure the business’s assets have not been pledged as security on a loan.
  4. Is a non-competition agreement appropriate? Sometimes a business’s main value is inextricably linked to one of its principals. If you buy a company from someone who is extremely experienced in his business or profession, will that person simply turn around and compete with you after you’ve purchased his or her business? It doesn’t help to buy someone’s business if that person later sabotages any chance of success that you might have. A properly executed non-compete, non-disclosure and non-solicitation agreement is appropriate in this situation. A non-competition agreement prohibits a seller from competing with the business after he has sold it.
  5. Does the purchase or sale involve a securities transaction? Sometimes the sale, purchase or investment in a business requires the expertise of a securities attorney. An experienced attorney will know how to comply with state and federal securities law. These laws require certain disclosures so that buyers are adequately protected when they invest in a business.

 

In selling any business the expertise of an experienced attorney is crucial. Contact the skilled Provo business attorneys at Howard Lewis & Peterson, P.C. today! We can help.

Posted May 9th, 2016