Today's post is on the legal considerations when purchasing or selling a business. There are several primary legal concerns that must be considered. The first legal consideration is liability concerns. There are two (2) types of Sales of a Business: (a) Asset Purchase Agreement and (b) Stock Purchase Agreement.
An Asset Purchase Agreement is a legal agreement to purchase the assets of an existing business. A purchaser does not have to purchase all the assets of a business. For example, a purchaser may want to purchase the name of the business, the goodwill, the accounts receivable, and the commercial lease of a business. These assets will be given a seperate value for tax purposes such as goodwill may be worth $2,000, the accounts receivable may be worth $15,000, etc.
The second legal consideration is how will the business be paid for. Such questions include whethe the Seller will provide seller financing of the business or whether a Bank loan will be used to purchase the existing business. The Asset Purchase Agreement shall typically give a buyer the ability to cancel the sale of the business if they cannot pursue proper financing through the Bank at reasonble terms. Quite frankly, a Seller that is providing seller financing will most often ask for a personal guarantee for the prospective buyers. The purpose of the personal guarantee is to sue a buyer to recover the Seller's lost revenue including attorney's fees and reasonable expenses.
In conclusion, it is critical to have an attorney if you are purchasing or selling a company. Often times, the attorney's job is to negotiate key terms that must be negotiated or to make sure a seller or buyer's legal rights are protected in case things go wrong. An attorney's job is to provide his or her client with protection in case the worst case scenario occurs.
Sean Robertson is a business and tax attorney based in downtown Chicago, Illinois. Sean Robertson has over seven (7) years of experience advising business owners on their legal considerations when purchasing or selling a business. Sean Robertson may be reached at (312) 498-6080. Our website is www.RobertsonLawGroup.com.
Sunday, August 14, 2011
Friday, August 5, 2011
Purchase and Sale of a Business: Important Lesson
This morning, I am meeting with a business owner that is purchasing a Day Care Center. We are preparing the letter of intent, which is designed to make a serious offer at purchasing the existing business.
A common question is what role does an attorney play in the purchase or sale of a business. Several months ago, I represented a buyer in another purchase of a business (i.e. restaurant). In that case, the seller was represented by an attorney after we had a binding contract. The seller never got a personal guarantee from any of the two (2) buyers. Furthermore, there were several negotiating terms that were favorable to us. The main point of emphasis is he failed to hire an attorney to represent him. The seller's attorney eventually argued and negotiated many good points for his clients and I did mine. The point is another attorney will take advantage of you without proper legal representation.
A common mistake with purchasing a business is failure to report the transaction in a timely manner to the Illinois Department of Revenue. If you fail this requirement, you can become for any unpaid tax liabilities by the Seller. Generally, most business owners do not want to purchase the liabilities of the Seller. The Seller honestly does not care because he or she wants to get paid and move on. A lot of times liabilities may be hidden or come back years later to haunt the new business owner.
If you draft an properly executed Asset Purchase Agreement, you will have a new business that is not liable for the old seller's liabilities and lawsuits. Often times, the attorneys negotiate and execute promissory notes and security interest agreements and even commercial leases. We also may do a commercial real estate closing because a lot of business owners own their property and the new business owners want the property along with the assets of the business.
Simply put, an Asset Purchasement is the purchase of select items such as appliances, furniture, goodwill, intellectual property rights, customer lists, and any other valuable asset. Each asset is given a price, so the Seller and Buyer take certain tax attributes. With me, I am a tax lawyer so this is a huge advantage to my clients. Most business lawyers do not understand tax at all.
In conclusion, an important lesson is have an experienced business attorney to assist you with your business purchase or sale. Sean Robertson may be reached at 312-498-6080. Our address is 35 East Wacker Drive, Suite 935, Chicago, Illinois 60601.
A common question is what role does an attorney play in the purchase or sale of a business. Several months ago, I represented a buyer in another purchase of a business (i.e. restaurant). In that case, the seller was represented by an attorney after we had a binding contract. The seller never got a personal guarantee from any of the two (2) buyers. Furthermore, there were several negotiating terms that were favorable to us. The main point of emphasis is he failed to hire an attorney to represent him. The seller's attorney eventually argued and negotiated many good points for his clients and I did mine. The point is another attorney will take advantage of you without proper legal representation.
A common mistake with purchasing a business is failure to report the transaction in a timely manner to the Illinois Department of Revenue. If you fail this requirement, you can become for any unpaid tax liabilities by the Seller. Generally, most business owners do not want to purchase the liabilities of the Seller. The Seller honestly does not care because he or she wants to get paid and move on. A lot of times liabilities may be hidden or come back years later to haunt the new business owner.
If you draft an properly executed Asset Purchase Agreement, you will have a new business that is not liable for the old seller's liabilities and lawsuits. Often times, the attorneys negotiate and execute promissory notes and security interest agreements and even commercial leases. We also may do a commercial real estate closing because a lot of business owners own their property and the new business owners want the property along with the assets of the business.
Simply put, an Asset Purchasement is the purchase of select items such as appliances, furniture, goodwill, intellectual property rights, customer lists, and any other valuable asset. Each asset is given a price, so the Seller and Buyer take certain tax attributes. With me, I am a tax lawyer so this is a huge advantage to my clients. Most business lawyers do not understand tax at all.
In conclusion, an important lesson is have an experienced business attorney to assist you with your business purchase or sale. Sean Robertson may be reached at 312-498-6080. Our address is 35 East Wacker Drive, Suite 935, Chicago, Illinois 60601.
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