Business Articles

Purchasing a Business
Purchasing an existing business is unlike buying a home. In purchasing a home you are able to view the home in an hour or less, obtain a title search to make sure the title is clear, and obtain an appraisal with your mortgage to make sure you are getting the value for your money.

In purchasing a business, you are unable to cursorily view the business. Not only must you view the physical attributes of the business, you must research and review the historical financial documents as well as assess the "intangibles" of the business (i.e. employee relations, necessary licenses, customer relations, landlord and supplier relationships, etc.).

Sellers sometimes suggest buying their corporations. However, a buyer of a corporation also accepts any corporate liabilities along with the assets. Such liabilities can include trade payables, personal injury claims, tax liabilities, employee claims, etc. Even if a seller appears to be trustworthy, the seller may not even be aware of some of the liabilities. Oftentimes, the only rationale for the purchase of the corporation is to avoid the need to transfer certain licenses and leases associated with the business. However most of the time it is usually in the buyer's best interest to buy only the assets and let the seller keep the corporation and its potential liabilities. The Buyer can then form his own corporation to run the business.

A business is like real estate in that some of the assets may be subject to mortgages or liens recorded in the public records. There may be tax liens against the owners that will encumber the business assets. Personal property taxes, sales taxes and employee withholding taxes may be delinquent or due. In the event the business owns real estate, a title search is often recommended. Your attorney can perform a public records search to help disclose these potential problems.

Purchase Agreement
The most important document in any transaction is the purchase agreement. A business may be owned by partners or a corporation in addition to the person behind the counter. It is important that everyone who has an interest in the business sign the purchase agreement.

The contract will contain the financial aspects such as the purchase price, deposits, and the terms of payment of the balance of the price. Sometimes the seller has a note due a previous seller that the buyer will assume. In such cases it must be established that the note is not in default, the balance due and that the consent of the previous seller is forthcoming. The contract must contain all necessary contingencies such as transferring of licenses, landlord approval, financial records review, environmental testing. The equipment and pending contracts of the business must be specified. These are only some of the concerns to address in the drafting of this most important document.

Oftentimes a business broker is involved in a transaction. Business brokers are an important consultant in any transaction. However, they would agree that only you, your attorney and accountant are solely looking out for your interests.

After the contract is signed, you are permitted the opportunity to further investigate a business. This is called the "due diligence" period. Your attorney and accountant can suggest many areas of necessary investigation. Once you have satisfied yourself that you are making a wise investment, the transaction is scheduled for closing. The closing documents are prepared by a closing attorney or by your or the seller's attorney. One attorney can act as your attorney and the closing attorney with the knowledge and consent of the Seller.