No two businesses are alike, and neither are any two business deals. If you’re looking to purchase a business, your goal in doing so is to get the best value. There are several important considerations to make in evaluating whether you are getting a good deal. A Connecticut business attorney will help you perform due diligence and give you a full picture of your options.
In most cases, a business deal will take one of the following two forms:
Asset purchase. In this type of transaction, the buyer purchases such assets as equipment or business property. The benefit of this type of sale is that a buyer can acquire assets while avoiding debts and liabilities. A properly drafted asset purchase agreement should be executed to specifically identify the assets being sold, among other terms.
Stock purchase. A buyer engaging in a stock purchase will buy all or most of the seller’s stock. Sellers often prefer this type of agreement because the buyer assumes the company’s debts and liabilities. A stock purchase agreement should address the price per share, the number of stock certificates exchanged, and more.
Regardless of which type of deal you enter into, perhaps the most important step in this process is due diligence. The purpose of due diligence is to ensure the buyer understands as much as possible about the business being purchased. These are some initial questions to consider, with the assistance of your Connecticut business attorney:
Does the company owe any back taxes? You want to make sure the business is up to date with state and federal taxes. An essential part of this is thoroughly reviewing returns, as well as records maintained by the Department of Revenue Services.
Are there any liens on the business? Performing what’s called a UCC search with the Connecticut Secretary of State is a critical step to answering this question. It will reveal the existence and extent of any liabilities or debts that may be owed by the company.
Is any money owed to vendors? You will want to review vendor lists and existing vendor contracts to know if any are owed money. The current owner should either pay these debts or have a concrete plan to do so.
How much revenue does the company earn? You want to have an idea of what a company makes before you buy it. But don’t limit your evaluation to just a single year. Understand what the company brings in consistently from one year to the next.
Depending on the industry you are buying into, there may be additional requirements that must be met. For instance, if you are buying a night club that serves liquor, you need to have a license. Other businesses with special obligations include restaurants, dry cleaners, and gas stations. Talk with a Connecticut business attorney about any unique requirements that may apply to the company you want to purchase.
After due diligence is complete, and you want to buy the business, your next step is to enter into negotiations. Using the information at your disposal, your Connecticut business attorney can negotiate the best possible deal for you. At this stage, you may need to obtain approval by the company’s shareholders or board of directors. A letter of intent may also be required so that both parties know the other is seriously considering the transaction. Your attorney can help identify and remedy any problems that arise during negotiations.
If and when a deal is reached, your Connecticut business attorney will help draft a formal agreement. This legally binding document will spell out all of the necessary details of the transaction. After what will likely be several drafts exchanged between both sides, the final document is executed at the closing. Documents will be signed (and notarized, if necessary) and recorded, and proceeds from the sale disbursed. Your lawyer will advise if there are additional steps needed after the closing.
Don’t Purchase a Business Without the Help of a Lawyer
Buying a business is complicated and often prolonged, with many potential detours. An attorney is essential to working out the best possible deal. Aeton Law Partners is here to guide you through this challenging but rewarding process. If you’re thinking about purchasing a business, give us a call to discuss.