The Legal Steps for Purchasing a Business
Purchasing
an existing business is one of the more serious commitments you can make.
Owning a business comes with tons of responsibilities. You have to contribute
your time, money and sweat. Also, you'll have to evaluate the risks you face in
comparison to the returns you need to make to ensure your firm succeeds.
A key
component in getting the best businesses for sale in Miami
is making sure you follow all rules and regulations. The following are some
procedures to consider when purchasing a business.
1. Conduct Research
Don't
make the purchase blindly. Identify
the strengths and weaknesses of the enterprise before
sealing the deal. Also, identify exactly what is included in the sale. In
simple terms, do thorough research to obtain information that the sellers may
not share with you.
Some
of the documents you should review include:
● Financial
records and statements
● A
list of all the suppliers and customers
● A
list of all the employees in the company, along with their contract terms and
salaries
● Any
legal documents and contracts pertaining to the business, such as lease
agreements
● A
list of all of the business’s assets and equipment
● A
list of all charges, liens, licenses, debts and liabilities
As
you'll note, the information on these documents is highly sensitive. As such,
the seller will probably request that you sign a non-disclosure form. The form
restricts you from using the documents for any purpose other than the purchase of the business.
Have
your lawyer review any documents before you sign them. The attorney will be
able determine whether a form is necessary or not and will help make sure
you're not signing something that could potentially have legal ramifications.
In
reviewing these documents, consider verifying the information on the various
government sites available. They can help confirm the status of any liens,
charges, or debts that the business may have. You'll also be able to determine
whether or not the company has any outstanding tax liabilities.
2. Determine the Purchase Structure
Here,
you'll need to determine the basic parts of this agreement. You should be able
to identify who is selling the
enterprise. Also, determine specifically what is included in the sale and the sales price. The agreement
should also state the manner and nature of the payment will be made.
As
you'll note, most businesses for sale are run by private companies. As such,
important assets of this business may be owned by one of those private
companies, which could include trademarks, patents and inventories.
You
may question whether you should purchase those assets
through your company or individually. It's very important that you make the
purchases through the company. That will ensure you reap the tax benefits.
Also, creditors may not come after your personal property or assets if
something goes wrong.
Additionally,
you must decide whether you're buying the company’s assets or the shares of a
company. In most cases, choose assets over shares. It will give you the control
and freedom you need to effectively manage the company.
With
purchasing shares, there is the possibility of becoming the owner of a business
with massive liabilities. And, when there are other shareholders, you’re not
allowed to maintain control over what happens with the company’s assets, such
as which workers to cut loose and which individuals to hire.
3. Negotiate the Terms of Purchase
Don't
make the mistake of entering into blanket negotiations for everything in the
business. Make sure you agree on every specific detail of these terms before
signing the document.
For
instance, a seller may want you to retain all the employees the firm has.
However, after the analysis, you may feel that the number of employees is too
big. As such, you need to agree in detail on how the situation with the
employees will be handled.
The seller may fire all the employees on the
eve of the purchase and require you to rehire them. In this case, it'll be
simple for you if you don't rehire them. However, the owner may refuse to fire
them. Then you'll have assumed their contracts, and firing them may result in
huge severance costs, depending on the terms of their contracts.
You
may also want the seller to sign a Non-Compete Agreement. This contract would
bar them from starting a competing business in the future.
In
most cases, the buyer has the responsibility of preparing all of the legal
documents. As the buyer, you need to take your time before submitting any of
these documents. Let your attorneys review them to ensure their completion,
accuracy and legality.