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.