Buy/Sell a Business links:
About the law
Buying a Franchise
many steps in buying and selling a business:
The first step is for the seller to decide to sell his business and to find a buyer. The seller gives information to the buyer, who checks the accuracy of the information. This information may include:
You should consult accountants, lawyers and other professionals to help you check the information. Sometimes the buyer and seller decide to sign a preliminary contract called an option. This states the basic points of the business sale. Usually, the option is written so that the deal will end if certain things cannot be done or if the information is not a accurate.
Be very careful and see a lawyer before signing an option, letter
or any kind of document. The option might force you to buy or
sell the business or to pay damages if you later cannot or do not
Share Purchase or Asset Purchase
There are two common ways to buy a business: buying the assets of the business or buying the shares of the company that owns the business.
Buying the assets means that you are buying the inventory, equipment, land and good name of the business. There may be benefits to the buyer as you can pick and choose which assets to buy and which not to buy. You may be able to better avoid lawsuits or claims from the running of the business in the past. You did not own the business at that time and the lawsuit should be directed at the previous owner. The disadvantage is that you may have to pay more taxes in an asset sale. Some of the assets may also be under a claim by third parties.
Buying the shares means that you
buy the company which owns the business.
Technically, there is no change in the ownership of the
business itself. The shares of the company are
transferred from the seller to the buyer. This minimizes
taxes due. However, you lose the ability to pick
and choose among assets. Generally, you must buy
all of the business. Also, you are liable for any
claims or lawsuits which arise from the running of the
business by the seller before you owned the
Contract of Purchase and Sale
The contract of purchase and sale is the agreement between the buyer and seller which describes in detail the promises and obligations of each party. The contract should be written by a lawyer. it may describe many things, including:
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Consent of Landlord and Others
The sale of a business may require the consent of third parties. Many business rent space. As part of the sale, the seller may need to transfer his lease to the buyer. This will be governed by the existing lease between the seller and the landlord.
An assignment places the buyer in the place of the seller in the lease. The landlord may accept the buyer in the place of the seller, or terminate the existing lease and enter into a new lease with the buyer.
Some business sales will require the consent of
other parties beside the landlord. For example, franchisors or
As part of the investigation of the business, a series of searches should be conducted. These searches are best conducted by a lawyer, and may include checking many government and court records.
The basic point of these searches is to make sure that the seller owns the assets which are part of the sale and that no one has a claim over the assets. The searches also minimize the possibility that the business is facing big problems such as tax liens or licensing difficulties.
A restrictive covenant is an agreement not to do something. Sometimes the buyer will want the seller to agree not to become involved in a business which competes with the business he/she just bought. This protects the value and reputation, or goodwill, of the business.
Restrictive covenants must be carefully
written. They may not be enforceable if the restriction is too
wide or restricts trade unduly. The restrictive covenant
should go no further than reasonable necessary to protect adequately
the business sold. This may involve a restriction on the
seller from opening a similar business in the area near the business
sold for a period of a few years.
The closing occurs on the completion date. The completion date is when the sale finalizes and the transfer of ownership occurs. This involves the pay out of money, the delivery of documents, and the registration of documents.
It is always best to have everything prepared and finalized well before the completion date. There may be many documents which must be signed and delivered. including:
The lawyers for the seller and the buyer will conduct the
actual transfer and deal with the transfer formalities according to
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This page last updated: September 22, 1999
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