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Business Law and the Sale of a Business

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Experienced Florida business lawyers will begin any evaluation of the sale of a business by examining the legal structure of the business. Is the business a sole proprietorship, a partnership, or a corporation? If it’s a sole proprietorship, is it a professional business or a business that requires a license to operate it. If the business is a corporation, is it a C Corporation, an S corporation, or some other structure?

General sale of a business considerations

Experienced counsel will conduct due diligence, according to Harvest Business Advisors and most business advisers. Due diligence means gathering all the information necessary to make an informed decision about the business. Normally, a due diligence letter/letter of intent is then prepared.

The business lawyer’s initial tasks

The lawyer will identify the key negotiation points. Typically, the lawyer will review what interest is being sold – the assets of the business or the stock (if the business is a corporation). If there is a partnership agreement, that business contract needs to be reviewed to determine how, to whom, when, and for how much the partnership interest can be sold. Buyers like asset purchases because they generally aren’t buying the debts and liabilities of the seller. Sellers, in turn, often prefer a stock sale so the buyer buys the debts and liabilities too.

The accountant

Normally, experienced attorneys will work with accountants to help determine the fair value of the business. The lawyers may also work with accountants or tax professionals to consider the tax consequences of the sale such as whether there are capital gains taxes and how to minimize those taxes.

Your in-house accountant or an outside accountant should review all your financial records. There are many items an experienced accountant will need to consider. Most of these items will also need to be reviewed by your lawyer once the accountant has done the preliminary work. The essential review items include determining the assets and liabilities of the company.

Other sales of a business items to be reviewed

A sale of business includes many other considerations such as federal and state regulations; outstanding contracts with vendors, customers and employees, required filings, and many other legal, business, and practical considerations. In almost every case, the seller of the business should consult with an attorney. While it is the American dream for many people to own a business, sellers of businesses should understand that the process of selling a business can take months or even longer.

Assets

Assets include many things such as:

  • The sums in any corporate bank accounts
  • The value of the stock owned by the corporation
  • The value of the real property and buildings if the company owns these assets
  • The worth of any intellectual property including trademarks, copyrights, patents, and trade secrets
  • The value of the company inventory
  • The value of any equipment
  • How much is due from customers on various company accounts
  • The amount of good will. Good will is generally the worth of the company based on its location, brand name, customer relations, and other factors
  • The value of any zoning approvals or other governmental approvals

Liabilities

Liabilities include:

  • Outstanding secured contracts
  • Outstanding lease and rental agreements
  • Any open contract debts
  • The amount of any other outstanding debts
  • Many other factors such as any liens, judgments, or lawsuits

Preparation

The company may want to take steps to enhance the business value by improving that way the buildings and other assets look – such as painting, repairs, and other improvements

Determining the fair market value of the business

There are different ways to value a business depending on the type of business and other factors. Buyers generally want to know how much income the business is reasonably likely to produce based on past records such as profit and loss statements and company tax returns.

How the sale will be made

Often the seller of a business will try to sell the business privately so as not to give competitors notice, not to worry employees, and for other reasons. If there is a partnership, then normally the other partners have the first right to offer to buy the business. Sellers will normally let buyers visit the business site and conduct a physical inspection. Some sales may be public so that anyone can make a bid on the business. Sellers may decide to use a commercial business broker to help find buyers in return for paying the broker a commission.

What happens after an agreement is reached

Typically, the buyer will then be given access to bank records, corporate filings, and a broad range of financial records to determine if the seller has been forthright about questions asked during the negotiation process. Buyers must also sign a confidentiality agreement in order to gain access to these records. In short, the buyer wants to have due diligence just as the seller should have used due diligence
Often the buyer will need to obtain financing for the purchase. The buyer may need approvals from other people and entities. The transfer of the assets, if an asset sale is taking place, will need to be accomplished – such as how copyrights, trademarks, and other intellectual property will be transferred. If real property is being transferred, there will then need to be a closing to handle the transfer, tax issues, utility transfers, title insurance, and the signing of deeds.

Non-compete clauses

Your Florida business lawyer, if he is representing the seller will then need to review non-compete clauses since the buyer will likely not want the seller to go into competition with the buyer.

The closing

Just as with the sale of a residence, in the sale of a businesses, there is a closing. The closing is where the transfer of the assets and stock takes place, the buyer and seller sign relevant documents , and the buyer pays the seller the purchase price. As with residential sales, preparation is the key to a smooth settlement. A premier sale of a business lawyer addresses the relevant concerns and disputes before settlement so that the seller gets his/her money and there is minimal risk the buyer will complain or file a lawsuit.

Other concerns

Additional sale of a business issues may include

  • What happens to the employees of the seller after the sale takes place
  • How long the buyer and seller have to complete the sales agreement and what happens if they don’t meet the terms of the agreement
  • An agreement that the seller won’t negotiate with other sellers while the agreement is active
  • Who will be the escrow agent
  • And when and how deeds and other relevant documents are recorded
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