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Estate and Business Planning Legal Blog

Tuesday, January 22, 2013

Buying or Selling A Business: The Basics

Both the purchase and sale of a business can be quite an emotional experience. Leaving the business which you have started and/or spent many years building may be quite difficult. You may believe that it is more valuable than most would appreciate. On the other hand, if you are buying a business, the excitement of the new endeavor may make it difficult to remain completely objective. Also, inex-perience in these matters may cause some anxiety.

The purchaser of a business must conduct due diligence. This entails a thorough review and check of financial statements and books and records, as well as searches for liens, judgments, litigations, and disclosed and undisclosed liabilities. In order to minimize liabilities, the purchaser will insist on buying just the assets of the seller entity, and not the entity itself. For tax reasons, the seller will want the purchaser to buy the stock of the corporation.

The seller of a business has different concerns than the buyer, namely, in the payment of the purchase price. Of course, every seller wants an all-cash deal, but it is unlikely that will occur, unless the purchaser is obtaining a loan to finance the transaction. In that case, the seller will likely be concerned about the ability of the buyer to obtain financing. In the event the seller is taking back a promissory note, he or she may justifiably be worried about the buyer’s ability to pay the obligation and about obtaining some security in order to ensure payment. Additionally, the buyer will ordinarily require the seller to enter into a non-compete agreement, so that the seller will not start a new venture in a similar business, and a consulting agreement, wherein the seller will be obligated to assist the buyer during a transition period.

The single most important thing one can do to alleviate some of the afore-mentioned difficulties is to hire professionals to provide advice and assistance in the transaction. A qualified accountant can prove invaluable in properly valuing the business and in preparing or reviewing financial statements. Similarly, having an experienced attorney prepare, review and negotiate the terms of the purchase agreement and other documents needed to consummate the transaction is essential.

In summary, buying or selling a business can be made easier, and more personally and financially rewarding, if the seller and buyer obtain the support of qualified professionals who work together as a team.


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