FIVE THINGS TO KNOW BEFORE BUYING OR SELLING A BUSINESS
Following are some practical observations about buying or selling a business that every business owner should know before venturing into this often unfamiliar territory.
First, Run the Numbers. For example, because the tax liabilities of two likely sales structures vary widely, with one structure risking a double tax. For another example, conditioning payments on certain events could increase the tax rate on them significantly.
“It’s Not Signed ‘Til It’s Signed”. At the beginning of sale talks, papers fly, chief among them “letters of intent” or “term sheets”. They should be expressly nonbinding and serve only to align the parties on basic deal structure and terms. The binding deal should come only in a complete purchase agreement including all attachments.
Buyer Beware. Just like buying a house or car, the law favors those who conduct a careful, thorough “due diligence” exam before buying a business.
Power of the Pen. Deal etiquette is for buyers to draft all purchase documents and sellers to draft all debt documents (like notes and security agreements). Buyers sometimes let sellers draft purchase documents, however, only to learn that the fees saved are far outweighed by unfavorable language that cannot be dislodged.
Wheat from Chaff. Fundamentally, acquisitions take the form of either a stock sale or an asset sale. The seller receives either cash or stock, or some combination. If you don’t carefully select the structure, you could end up with a surprise, for example, on who ends up with hidden liabilities. The above is just a sampling and not a complete list, as there are other points to consider.
The above is just a sampling and not a complete list, as there are other points to consider.
We can help you structure, negotiate, document and close your deal. Please visit out M&A practice page http://www.plessandsauro.com/atlanta-mergers-and-acquisitions-lawyers/
Visit www.plessandsauro.com/blog for more helpful tips.