Buying a business can be an incredibly complex process even for those who’ve done it before, so it’s no wonder why even the most experienced buyers seek assistance from skilled attorneys.
In short, a business attorney can provide crucial advising and oversight to help you protect your investment and minimize risk when buying a new business.
How businesses are “bought”
There are several ways to “buy” or absorb a business. More often than not, individuals and other organizations use one of three methods:
- Purchasing the assets of the business
- Purchasing its stock
- Merging with it
First, you’ll want your business entity in place before you enter into any agreement with the seller. Setting up a corporation or limited liability company might get delayed by oversight or cost concerns. It’s only going to get more time consuming and carry significantly more expense if you skip the step of setting up that business entity to do it later.
Even small business deals don’t happen overnight. An experienced business attorney knows how to create the entity that will be the purchaser and make the offer to purchase from that entity to be formed. Whatever the entity you choose to do business as, there are also shareholder decisions that need to be drafted and set forth in a shareholder agreement.
This, in particular, is one area where the expertise of a Wisconsin business attorney is crucial. Omitting just one word or phrase in these agreements can mean disaster down the road. A skilled attorney will know exactly how to draft the agreement to your specifications.
The asset purchase agreement
The general rule on asset purchase agreements is that the buyer doesn’t assume any of the seller’s debts. There are exceptions to that rule though.
For example, if real estate is mortgaged and you purchase that real estate along with seller’s other assets, you take the real estate subject to that mortgage. An exception also applies to secured personal property. All of the seller’s assets must be carefully detailed and valued, including the good will. Titles to all assets must be transferred. Details like these are best left to attorneys who can identify potential problems and address them each in full.
The stock purchase agreement
You can also buy all of the seller’s stock. As an alternative, you can buy the majority share of it, but that leaves you with a minority share business partner.
In either case, the company that you buy becomes your company’s subsidiary. The company that you purchase will continue to own its assets, but you’ll control them because with your majority voting power, you’ll designate new directors and officers. Take note that purchasing a controlling interest in a company means that you’re also assuming its debts.
Stock purchases like these force the buyer to make decisions that carry tremendous weight and significance for the future of the business. A skilled Wisconsin business attorney can align your decisions directly to your short and long-term business goals.
When a merger occurs, one company survives and the other dissolves. The company that survives issues new shares of stock and buys the shares of the acquired company with the new shares.
Shareholders of the acquired company are then shareholders of the surviving company. Since there’s nothing left of the acquired company, the surviving company dissolves it.
Due diligence period
Aside from deciding on the form of the new entity, setting it up and the acquisition of the business that you’re buying come the issues that can arise during the due diligence period. This period might be more properly called the investigation period. This is an in-depth investigation into matters that include but aren’t limited to:
- All books and records
- Tax records
- List of creditors
- Record of inventory
- Real estate title search
- UCC search
- Outstanding litigation search
- Lease issues
- Zoning issues
There are times when a buyer will walk away from a deal due to irreconcilable issues that are uncovered in the due diligence period.
Retaining a business attorney at the very beginning of the process of buying a business will help you avoid costly mistakes and minimize any risks you’re undertaking in a highly complex and detailed business transaction.
At the Fitzgerald Law Firm, we help you negotiate the terms of your contract to purchase, draft it accordingly, perform exhaustive due diligence and close the transaction. When you’re buying a business, you’re making a very significant investment in your financial future. The counsel of a knowledgeable and experienced business attorney is part of protecting that investment.
Click here to contact the Fitzgerald Law Firm for a free consultation today. Don’t neglect any of these considerations and don’t stress over their implications. Let us help you.
At The Fitzgerald Law Firm your initial consultation is always free and you will always meet directly with one of our attorneys. We understand that appointments during traditional working hours may not be convenient for all, and thus we strive to be available for evening, weekend, and off-site appointments.
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