There are complex legal and practical considerations when a person or entity is buying a business. Most people probably liken buying a business to buying a house or other real property. However, buying a business is much more complex. You will need to retain a talented and experienced Michigan business attorney to help. The advice and guidance extends well beyond drafting or reviewing the business sale/purchase agreement (although that must be done too). In general, the process of buying a business can be broken down into five phases:
- Exploration phase — is this the right business to buy?
- Preparing and execution of the sale/purchase agreement — formalizing the terms of sale/purchase
- Due diligence — confirming details, preparing documents, getting approvals
- Post-closing wrap-up
The guidance of a trusted Michigan business attorney is essential in each phase. Here is a quick rundown of some to the essential tasks performed:
Guidance in the exploration phase
The main task that your trusted business attorney can accomplish in the exploratory phase is to prepare documents necessary to allow the parties to safely explore a possible sale/purchase. For example, if there are trade secrets or other intellectual property involved, the parties will need confidentiality and nondisclosure agreements in order to exchange information. Also, if desired, your business attorney can prepare a short document, like a Letter of Intent, that sets out some of the basic agreed-upon terms. This sort of document is used to prepare the more formal and much more detailed sale/purchase agreement.
Preparing the Sale/Purchase Agreement
Depending on the business, a sale/purchase agreement may run to dozens or even hundreds of pages. Aside from the basic terms like the price, what assets are being sold, how the deal is structured and which employees will be retained (if any), the sale/purchase agreement must cover foreseeable eventualities such as the inability of the buyer to arrange financing or the seller’s inability to substantiate sales and profit figures. Experienced business attorneys know what needs to be in a sale/purchase agreement based on the unique aspects of the deal in question.
Conducting Due Diligence
After the sale/purchase agreement is executed, there is generally several months of what is called “due diligence.” Here, your team of experienced Michigan business attorneys confirms various aspects of the deal. For example, if real property is involved, then, during due diligence, it must be confirmed that the seller has good title. Likewise, if the seller has financing that is collateralized with, for example, inventory, then it must be confirmed that the financing can be released as part of the closing. Other matters to be reviewed include
- Financial documents such as tax returns, P&L statements, etc.
- Sales figures
- Any sort of contract (employees, vendors, suppliers, etc.) and lease (office, warehousing space, etc.)
- Books and records of any corporate entity involved
- UCC and financing documents
- Documents related to insurance
- And more
In addition,with any sort of sale/purchase, various clearances and approvals are needed. These include clearances from various taxing authorities (for sales tax, employee withhold taxes, property and use taxes, etc.), from lenders and from contract partners like landlords and others. During due diligence, various legal documentation is prepared including examples like deeds for real property, assignments for intellectual property, employment contracts for retained employees and more.
Closing the Deal
Assuming that due diligence has not uncovered any significant problems that prevent consummation of the sale/purchase, the fourth phase is the closing itself. Your Michigan business attorneys will make sure that all the approvals and clearances have been collected, all the other paperwork is ready to be signed and that any last-minute problems are resolved. And, there are almost always minor last-minute problems to resolve.
Completing Post-Closing Tasks
Often, there are tasks that must be completed after closing. Sometimes, these are minor, such as waiting for a clearance letter to arrive or ensuring all the necessary recordations are completed. Sometimes, the tasks can be major such as waiting for the quarterly sales figures to be delivered so that a price adjustment can be made or a hold-back escrow can be released.
If you have questions or need legal assistance with buying or selling a business, contact the business lawyers at Revision Legal at 231-714-0100.