After the structure, price and other major terms are agreed upon, a comprehensive purchase/sale agreement should be drafted. Every transaction is different, so I do not use standard forms. I draft each purchase/sale agreement based on the nature of the business. The contract phase of a business transaction can consume much more time and money than necessary without an experienced business attorney. I have handled transactions in many different business sectors, including medical and dental, retail, bars and restaurants, financial services, manufacturing and real estate.
The contract should specifically list the assets or stock being sold as well as any assets that are excluded. It should guarantee that the buyer is getting good title to the assets or stock free and clear of liabilities, except for those that the buyer has agreed to assume. It should detail the contracts, accounts, and liabilities of the business that are being assumed by the buyer and should contain indemnification provisions so that the buyer is not responsible for pre-closing liabilities and the seller is not responsible for post-closing liabilities. It should contain both buyer and seller warranties and representations. If there are any consulting or non-compete obligations, those should be clearly set forth in the contract or in an incorporated agreement. Non-competition agreements can be particularly problematic if not carefully drafted. Finally, the contract should list all conditions to the obligations of the parties and all contingencies, such as the buyer’s ability to obtain financing or obtain licenses. This is by no means a complete list of provisions that should be included in all business contracts. Again, each business is different and each contract is different. As you can see, an experienced business attorney can make a complicated process go much smoother.
Due Diligence Review:
After a contract is signed the next phase of a business transaction is due diligence review. Financial due diligence for a buyer involves reviewing financial statements, tax returns and other records of the business, and again, a CPA should be involved. If the business owns real estate and/or hard assets, a buyer should conduct physical due diligence such as property and asset inspections, environmental studies, surveys, and other testing dictated by the nature of the business. I work with a number of professionals who can assist with physical due diligence, and I am available to address any issues that are discovered. A thorough due diligence review should also involve title, lien, bankruptcy and tax searches, and confirmation of the validity and authority of any entities involved in the transaction. I routinely handle these aspects of due diligence review.
The due diligence process also involves the buyer getting licenses and insurance in place to operate the business. The buyer may need to set up a new entity to own assets or acquire stock. The buyer may also need to pursue financing and satisfy all of the lender’s requirements. Meanwhile, sellers will need to prepare for the sale by providing access and information to the buyer. Sellers may also need to prepare for the transition by advising customers and employees.