Buying a Business in Florida – Legal and Practical Issues
The buyer is always at a disadvantage at the beginning of the purchase process. At the beginning, the only information you have comes from the seller. Obviously, the seller’s goal is to sell the business for as much as possible. So, the information they provide is going to paint the best picture possible about the current state of the company. You simply don’t know what you don’t know.
Buying a business can be risky proposition even when you are well informed. There are any number of unforeseen issues that can turn what once looked like a brilliant opportunity into a nightmare of a situation.
Thinking about, or in the process of, buying a business? We can help! Our attorneys will help you through the process, make sure you get what you paid for and reduce risk. When you hire Walsh Banks Law, you gain access to trusted, experienced lawyers for strategic legal counsel and representation. Give us a call and find out how our legal services can help you overcome obstacles and succeed (407) 259-2426 or Schedule a Consultation
Legal Assistance for Buying a Business
Beyond the basic terms of purchase price and structure of the transaction, there are extensive legal, financial, and tax matters that need to be reviewed and verified. Considering the significant investment of funds, effort, and related resources, it is critical to work with a knowledgeable business lawyer who has comprehensive acquisition experience.
With nearly 100 years of combined experience advising clients on buying / selling businesses, mergers, startups, commercial finance; as-well-as, general business and corporate law, our attorneys have the knowledge, experience and skills necessary to guide you through the entire purchase process, and help you achieve your intended objectives for making the purchase, while also ensuring proper protection of your legal rights and interests.
Our role in the purchase process is threefold. First, we make sure you get the information you need to make a well informed decision. Second, we help negotiate and structure a deal based on that information that reduces risks and protects your interests. And, third, we make sure the deal is properly closed so you actually get what you bargained for. The bottom line is, we are here to help you get what you are paying for, with the least risk possible.
To fulfill these roles during the purchase process we:
- Advise on and help negotiate throughout the entire purchase process.
- Advise on legal, financial and tax implications of different potential purchase structures – merger, stock purchase, asset purchase.
- Negotiate and document the terms and conditions of the purchase.
- Conduct a thorough due diligence review of the company being purchased and the seller.
- Help negotiate financing, payment structures, and review loan agreements.
- Closing and post-closing representation and follow-up.
Assessing Your Business Objectives
You should give careful consideration to why you want to purchase an existing company. Unless you formulate and document an itemized list of your objectives, you could be wasting both time and money. In addition, your objectives should align with benefits that only an existing organization can offer. Otherwise, it may make more sense to start your own company rather than go through the meticulous and costly process of acquiring one that is already in operation.
One of the most common goals purchasers consider when thinking about buying a business include acquisition of intellectual property. There can be substantial value in gaining access and rights to such assets as patents, trademarks, copyrights, industrial designs, manufacturing processes, and more.
Other potential targets for acquisition may include:
● Real estate;
● Personnel and key employees;
● Cash flow;
● Customer relationships and goodwill;
● Supplier relationships; and,
● Many other assets or interests that provide value.
Is Buying an Existing Business a Good Idea?
Starting and building a business from the ground up is challenging and time consuming. Despite Florida’s extremely friendly business environment the vast majority of new companies fail within the first five years of operation. There are simply a lot of risks involved in starting a new business. Why start one when you can buy a company that has the ground work done for you, has an established record and accomplishes your objectives? Buying a business is often less risky than starting one from scratch. That is, as long as you have fully evaluated the fundamentals of the target company and fully understand what you are buying.
Advantages of buying a business:
- Business processes are already in place.
- It’s a proven profitable concept.
- Its future can be measured against its past.
- The brand is already established.
- A well trained team is already in place.
- Already a positive cash flow.
- Fixed costs are known.
- Lines of credit are already established.
- Vendor agreements are already in place.
- There is an established base of clients.
- Reduced Risk
Disadvantages of buying a business:
- Industry may be in decline or competition on the rise.
- Management has neglected critical facilities and equipment.
- The business’s reputation may need rehabilitation
- There could be staff problems.
- You could get stuck with bad contracts and leases
- Previous success of the business relied heavily on the personality of the seller.
- Profitability and success exaggerated by seller.
- Seller could be hiding problems
- Problems with current location of offices and facilities
Granted, buying an existing business can be more expensive upfront than starting one. And just because it has been profitably in operation for years does not mean there is no risk involved. However, if you buy the right business, one that meets your objectives, is operating properly, and has good underlying fundamentals, it can be very profitable. The challenge is finding the right business that is being operated successfully and profitably with few or no liabilities.
Buying the Right Business Requires A Team
Buying a business is a big complex transaction. The larger and more expensive the business being purchased is the more complex the transaction. As the buyer you have to rely on the information the seller provides you, so you are at a big disadvantage. Not every business is well run. Not every business owner is scrupulous. You don’t want to be sold a bad bill of goods.
On the surface some businesses seem profitable and look to have a bright financial future. But, dig a bit deeper and the outlook isn’t so rosy. There are a lot of red flag high risk issues that the seller of a business may not tell you about. For that matter, they, themselves, may not even know about the issues. You need to do due diligence on the business you are considering buying to verify the information the seller has provided. You need a team of experts to help you evaluate the deal.
At a minimum the core of your acquisition team should be comprised of two key players; a business lawyer and an accountant. These core players will be able to do proper due diligence by evaluating and investigating the documentation and information the seller has provided about the operations of the business. Depending on the size and scope of the business you are buying there are several other experts you should consider including on your team.
You may want to consider adding a business analyst who can help you determine if the business is worth the price. You’ll also want to include a real estate adviser to evaluate the value of any leases or property owned by the business. And, last, have your insurance agent evaluate the type and extent of insurance coverage the business will need.
Ultimately, you will depend on your advisers to help you make a final decision about the acquisition, determine the structure of the deal, and any warranties that may be required of the seller. The bottom line here is, your are trying to accomplish a specific business objective by purchasing the company and your advisers are there to help you determine if the business being evaluated will help or hinder you in attaining that objective.
How Do You Want to Structure the Deal
You’ve found an existing company to purchase that meets your business objectives. Now you need to decide how you are going to structure the purchase. Are you going to purchase just the assets of the business? Or, are you going to purchase the business itself; along with the assets. In other words do you want to structure the deal as an asset purchase? Or, do you want to structure the deal as a stock purchase? Yes, you could also merge the two companies. Right now, we’re focused on buying a business. Adding a discussion about mergers will simply muddy the waters.
Here are a few other things you may want to think about when considering buying a business via an asset purchase agreement or a stock purchase agreement. Here are the Pros and Cons from a buyer’s perspective:
Purchasing Assets of the Company
From a buyer’s perspective structuring the deal as an asset purchase is far more advantageous. The buyer does not assume any of the business’s liabilities. And, they receive some tax benefits from purchasing new assets. Moreover, the buyer is not stuck in any poorly negotiated vendor, sales or employment contracts. The big advantage of only buying the assets of a business is that you do not acquire the bad decisions of the previous business owner as well.
Pros of an Asset Purchase
- No legal liability.
- You do not have to clean up a poor reputation or credit profile
- Not stuck with poorly crafted contracts.
- Not stuck with disadvantageous equipment / facilities leases
- Tax advantage of new assets
Cons of an Asset Purchase
- More work to get business back in full operation.
- Facility leases will have to be renegotiated and signed.
- Vendor and Sale contracts will have to be resigned.
- Refile for licenses and permits.
- More difficult to retain current employees.
- Lines of credit will have to be reestablished.
Purchasing Stock/Shares of the Company
In general, the seller will prefer to structure the deal as a stock purchase and not as asset purchase. First, structuring the deal this way will likely be more tax friendly. Second, selling the entire company to you; lock, stock and barrel, means they are out from under any liability associated with the business.
Pros of a Stock Purchase
- Turn key business ready to go.
- Established credit
- No public notification of sale
- Vendor & Sales contracts are in place.
- Facility and equipment leases are in place.
- Key employees are in place.
- Federal, state and local licenses and permits are in place
Cons of A Stock Purchase
- You can be held liable for previous owner’s poor decisions.
- Potentially stuck with poorly crafted contracts
- Potentially stuck with disadvantageous equipment / facilities leases
- Unknown HR lawsuits
- Unknown business lawsuits or contract disputes
- No tax advantages
Work with Walsh Banks Law
Because we have been representing business owners and stakeholders for decades, the business law attorneys at Walsh Banks Law have the experience and in-depth knowledge necessary to protect your interests when buying a business. We can offer professional, solid legal advice throughout all aspects of the transaction, from preliminary considerations, to negotiations and outlining the terms of the transaction. Additionally, our lawyers will assist by drafting the letter of intent, conducting due diligence review, and negotiating any adjustments to the purchase based upon our inspection.
We are proud to have provided sound legal strategies and effective solutions to hundreds of businesses throughout the greater Orlando area. Our team is also ready to enforce your rights or defend your interests if any disputes or compliance issues arise out of acquisition of a company. We have extensive litigation experience fighting for businesses of all types and sizes.