Like any business endeavor, buying a business requires a sound due diligence and attention to detail throughout the entire purchase process. Acquiring an existing company exposes the purchaser to risks, liabilities and potential legal pitfalls that they wouldn’t otherwise be exposed to if they were starting a business from the ground up.
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.
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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:
To fulfill that role, during the business purchase process, we:
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:
Regardless of your motivation, achieving your objectives requires a keen understanding of the various legal issues. Retaining an experienced lawyer to offer advice and counsel on the purchase structure, critical documents, due diligence, risk assessment, and other matters is essential.
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:
Disadvantages of buying a business:
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.
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.
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.
As a buyer you have to decide how you want to structure the deal. This is one of the most critical decisions you will make.
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 some of the Pros and Cons from a buyer’s perspective:
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
Cons of an Asset Purchase
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
Cons of A Stock Purchase
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.
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.