Purchase Process - Part 1

Last week, we covered the types of deals you might encounter when buying or selling a business (https://www.peters.legal/post/business-purchase-sale-series-types-of-deals) Today, we’ll be exploring some of components of the purchase process that are essential to any type of business ownership transfer.

Purchase Agreement

Negotiating the purchase and sale agreement is the first step in the process of buying or selling a business. That agreement is the blueprint for how the sale will proceed, and it contains many details that should be negotiated with the help of an attorney. In its simplest form, a purchase and sale agreement will set out important details, including the parties to the agreement, a comprehensive list of assets and liabilities being transferred (or not), a closing date and the price. If the business currently has employees, additional details might need to be included in the agreement to account for payroll and tax obligations. In certain cases, additional provisions like a non-compete clause may be required.

Earnest Money

Earnest money is a cash deposit a buyer makes to a seller that represents the buyer's good faith intention to buy the seller’s business. The money gives the buyer extra time to arrange financing, conduct their due diligence and perform inspections before closing. In many ways, earnest money can be considered a down payment on a business

Seller Disclosures

During the seller disclosure phase of the deal, the seller provides details about all facets of the business, including a detailed listing of the assets and liabilities (and which are being included in or excluded from the deal), stock information, ongoing legal action, past business performance (which can take the form of P&L statements, a balance sheet and other financial documents), information about employees and other operational details. The seller must warrant as part of this process that these representations are true. Usually, the parties agree in advance to keep all of this sensitive information confidential.

I once handled a lawsuit against a foreign company that ignored the confidentiality requirements in the business purchase and sale documents. The other company’s misconduct cost my client millions of dollars. Fortunately, we were able to recover every penny of my client's losses, plus attorney’s fees, after a long trial and an appeal.

Reach out to us today if you want to purchase or sell a business or if you have been harmed because you negotiated such a deal and found out the hard way that the other party was dishonest.