Business Acquisition Lawyer Virginia

Whether you are buying or selling a business, it is important to have an experienced business attorney involved as early as possible in the process. In some cases, a business broker or other professional may be involved in the transaction. The broker or one of the parties to the transaction may prepare a letter of intent setting forth the major points that have been agreed upon. A letter of intent should be non-binding, but it does set the expectations of the parties, so it should be reviewed by an attorney before it is signed. Whether or not the deal starts with a letter of intent, it must eventually be formalized by a comprehensive purchase/sale agreement covering all the rights and responsibilities of the parties.

Asset or Stock Deal?

The first issue for a business purchase/sale is the structure of the transaction. Whether it is an asset deal or a stock purchase/sale will have important implications for the parties. Buyers usually seek an asset purchase for tax and liability advantages. An asset buyer starts with a clean slate, does not inherit most of the current liabilities or contracts of the existing business, and is able to depreciate the business assets at their purchase value. On the other hand, a stock buyer steps into the shoes of the stock seller, and the business continues with its existing tax structure, contracts, and liabilities. Stock sales are often used for businesses that have contracts or licenses that are not readily assignable, or there may be other operational issues that make a stock sale more appealing. These are just some of the issues involved in the decision of how to structure a business transaction. All aspects of the deal should be discussed with both an attorney and a CPA.

The Purchase Price:

The purchase price of the business should be justified by the income or potential income of the business and the value of the assets, inventory, and goodwill. Sellers should have a set of financial records for prospective buyers to review. Prior to making an offer, buyers should review financial records and come to a basic understanding of the business. A confidentiality agreement is often necessary to protect the parties during this stage.

The Contract:

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.

Financing:

It is not often that a buyer is able to pay cash for a business. Financing plays a major role in most business transactions. Seller financing is one option. Since the financial crisis, commercial financing has become more difficult to obtain, so seller financing often fills the void. Seller financing normally involves a promissory note, personal guarantees, and security documents, such as security agreements, deeds of trust against real estate, and financing statements against business property. I can handle all aspects of a seller-financed transaction. I also handle all forms of commercial financing, Small Business Administration guaranteed loans. When commercial lenders are involved there will be an extensive list of requirements that must be met, and the involvement of an experienced attorney is crucial. Finally, I handle transactions involving funds drawn from or borrowed from self-directed IRAs or 401-k vehicles.

The Closing:

After financing is in order, all conditions of closing have been met, and all transfer documents have been prepared, the coast is clear for closing. There are many moving pieces involved in getting a deal over the finish line. If a lender is involved, the lender’s closing instructions will dictate much of the closing process. There should be a comprehensive settlement statement showing the receipt and distribution of funds. This document is important for tax purposes. Expenses need to be pro-rated. If the business has inventory or work-in-progress, those items need to be valued and correctly allocated between buyer and seller. Liens on the business need to be paid off and released. In the case of an asset sale, title to assets needs to be transferred, and in the case of a stock sale, the stock needs to be transferred and the corporate records updated as of the closing date. Finally, funds are distributed to the seller.

Post-Closing:

There are often a number of post-closing responsibilities for the parties, and for the attorneys, in a business acquisition/sale. The seller may have consulting responsibilities. The lender may have post-closing requirements and filings that need to be made. The buyer may need to transition employees and customers, update contracts, and business forms, obtain licenses, etc. My involvement does not end at closing. I provide complete representation to my business clients.