When you decide to acquire a new business, always remember that this type of purchase can have major financial, tax, and legal ramifications. Because of this, it is crucial you know all the steps that are involved in buying a business. To make sure you know the various details and set the stage for a smooth and easy acquisition, here’s what you need to know about the legal process.
Do Your Due Diligence
Just as this sounds, doing your due diligence means investigating all aspects of the business from top to bottom before taking ownership. If you fail to do this and problems arise after you have become the new owner, they will become your problems, even if you did nothing to cause them. Unfortunately, problems can pop up in many different areas of a business sale, with the most common being issues related to tax liability, regulatory violations, contractual liabilities, and more. Should you discover something that changes your mind about the acquisition, you’ll be able to move on without incurring any liability.
Make an Offer
First, you’ll make the current owner an offer. However, this doesn’t necessarily have to be an all-cash offer. Instead, you can use a combination of cash, equity, and other assets. The higher the asking price and the more complexities involved in the acquisition, the greater need you’ll have to consult with an accountant or attorney before making the deal final.
Sign a Letter of Intent
Once you and the current business owner reach an agreement, both of you should sign a letter of intent. The non-binding letter of agreement will contain the basics of the transaction, such as the asking price, deal structure, and more. Essentially, it is a good-faith letter that you can use to back out of the deal should you change your mind for any reason. However, before signing anything, always consult with an attorney who specializes in corporate law.
Finalize and sign the Purchase Agreement
As your final step, you and the current owner of the business will finalize and sign the purchase agreement. When you reach this stage of the acquisition, remember that it is your responsibility as the buyer to draft this document. Therefore, make sure you are clear as to the details as you read over the agreement after it has been drafted by your attorney. Ensure that this attorney specializes in corporate law as they are more likely to be familiar with the common issues that come up in purchasing a business. If you have any questions, get them answered to your satisfaction prior to signing the agreement.
By understanding the details and having an experienced attorney guiding you each step of the way, you can acquire your new business with no problems whatsoever.
Author information: Anica Oaks is a professional content and copywriter who graduated from the University of San Francisco. She loves dogs, the ocean, and anything outdoor-related. She was raised in a big family, so she’s used to putting things to a vote. Also, cartwheels are her specialty.
