Legal Articles

Legal Agreements

Working with business transaction qualified attorneys is important before, during, and perhaps after a business sale or transfer. 

In preparation for a business sale, the following may be required:

  • Development of a Shareholder or Buy-Sell Agreeement
  • Pre-transaction Due Diligence by the Seller to make sure that all Representation and Warrants are accurate
  • Review of major customer and supplier contracts
  • Creation of employment contracts with key employees
  • Review of employment practices to determine if they are current and legally compliant
  • Review of all corporate records to make sure they have been kept correctly
  • Review of any environmental issues
  • Confirmation that all licenses, filings, and permits are up-to-date
  • Determine the best structure for a sale transaction

During the sale transaction, the attorney will be needed for:

  • Negotiation of the Letter of Intent
  • Negotiation of the final Definitive Agreement
  • Confirmation that all legal filing to support the sale have been completed in a timely fashion.

Legal Due Diligence

For both buyer and seller it is important to perform legal due diligence on the other party to determine if their representations are accurate and complete. 

The buyer wants to make sure that:

  • The seller has no issues that might impact the ability of them to complete the transaction.
  • That seller is not involved in any law suits that might impact the sale.

The seller wants to make sure that:

  • Any intellectual property has been properly protected.
  • That there are no undisclosed outstanding law suits.
  • That all of the disclosed assets are solely owned by the seller.
  • That there are no undisclosed, outstanding liens on any assets.

Corporate Structure

Having the correct corporate structure for a company is impacted by many factors, including ownership, investor, and tax issues.

Certain corporate structures are more favorable to minimize taxes than other options and a change from one form to another may be warranted in advance of an anticipated business sale.  In several cases, however, the IRS has a waiting period in order for these tax advantages to be accepted.

Corporate Structure should be carefully considered and based on qualified advice from an attorney or accountant. In the long run, this may reduce taxes considerably if implemented correctly and in a timely fashion.

Transaction Structure

Transaction Structuring includes the following:

  1. What will be sold?  This refers to all real estate, other tangible assets, and intangible assets.
  2. Will the sale be an asset sale or a sale of company stock?
  3. Will the owner provide any seller financing?
  4. Will there be any borrowing as part of the transaction?
  5. How many owners of the business are there and how will any proceeds be distributed?
  6. Is there a promise of future payments by the buyer and how will that be structured?
  7. Will there be a note from the buyer for some or all of the purchase price?
  8. Are there any employment agreements involved, either from the seller or generated as part of the sale transaction?
  9. Will all employees of the seller be hired by the buyer? Under what conditions?
  10. Are there any default clauses that would change the ownership, purchase price, or payout schedule?
  11. Are there confidentiality, non-compete, or no-hire agreements as part of the transaction?