The Role of a Business Purchase Attorney
The acquisition of a business is a high-stakes game, and the risks are numerous. A business purchaser is making a significant financial investment and is likely making the decision based on the financial information provided by the vendor. The stakes get even higher if the business acquisition is financed by bank debt, which while not the business purchaser’s liability, may become the liability of any personal guarantors. In addition to the financial risks, there are legal risks for the purchaser, including litigation from a non-competitive seller, assets of the business being subject to liens, or the seller being subject to criminal charges (such as tax evasion or fraudulent conduct).
A business acquisition lawyer will help mitigate these risks by providing advice with respect to the legal aspects of the contemplated acquisition. The business acquisition lawyer will advise on, for example, contingent liabilities, the repayment of debt on acquisition, in the context of the business purchaser’s strategy and business plan. A business acquisition lawyer will also review the company’s organizational documents, third-party contracts, intellectual property protection and pending litigation to determine what legal rights and obligations may be triggered by a business acquisition, as well as the impact on the purchaser’s planned operations.
The most critical and important function of a business purchase lawyer is to assist the purchaser in undertaking due diligence with respect to the vendor, the business and the business assets. Due diligence is the process undertaken by the purchaser of obtaining the information it needs to make an informed decision with respect to the proposed acquisition – such as conducting due diligence into the ownership of the business, third-party contracts, historical financial performance of the business, whether the business assets are subject to liens and litigation involving the vendor, the business and business assets . The purchaser’s ability to complete the acquisition successfully will be in large part determined by the quality of the due diligence it conducts.
Due diligence is often conducted but not always by a business acquisition lawyer. Sometimes it is completed by a third-party provider, such as an accountant or consultant. However, even when a due diligence report is provided by a third-party provider, a business purchaser should always seek to have the report reviewed by its business acquisition lawyer, who will be able to advise the purchaser with respect to the information provided by the report and whether the information provided corresponds with their business plan.
Once the purchaser completes due diligence and decides to proceed with the acquisition, the purchaser’s situation may change. It may uncover unexpected liabilities, increase its valuation of the business it is acquiring, or identify material conditions to any proposed purchase price adjustments. It then becomes necessary to negotiate the business deal terms and finalize the transaction documents based on that subsequent due diligence.
Finally, once you close your acquisition, you will want to ensure compliance with the legal elements of the terms of the transaction and the correct registration of any security that you have taken. For example, if you have purchased only specific assets of the vendor, you must file and record the transfer. Failing to do so could result in third parties being able to pursue the purchased assets or personal guarantors of the debt being required to pay the debt of the vendor.
Having a business purchase lawyer to assist you in all of these aspects is essential.
Key Tasks of a Business Purchase Attorney
In the intricate dance of acquiring a business, a business purchase lawyer ensures that legal compliance goes hand in hand with business goals. Their role is to provide clarity, prevent pitfalls, and secure the future of your newly acquired venture.
When negotiating a business acquisition, clear and effective communication will save you time and money. A skilled business purchase lawyer ensures that all contracts are properly structured, thus fulfilling its intended purpose and avoiding costly errors and misinterpretations in the future. The entire transaction should be glanced over by a lawyer, ensuring legality, accuracy, and precision. They will develop the Memorandum of Agreement which formally outlines the details of the acquisition payment plan, closing time, and other important provisions. Your business purchase lawyer will negotiate price, terms of finance, conditions of sale, share purchase agreements, and other key details essential to closing the right deal. Additionally, they’ll check for available exceptions to liabilities and scandals that may lessen the risk of an opportunistic third party’s buying opportunity. Finally, they will ensure that the deal is equally profitable for both parties involved.
Due to the complexity of the acquisition requirements, you will require the assistance of an experienced business purchasing lawyer. They will assist you in choosing the most effective and favorable structure for the business you are acquiring. Whether it be a stock purchase, assets purchase, or a merger, a business purchase lawyer will ensure that your deal has been deemed both favorable and viable. A thorough business purchase lawyer will also make you aware of the legal and regulatory requirements, assisting you in staying compliant throughout your business acquisition. It is their duty to provide a fundamental understanding of how business acquisitions work and how to navigate the ever-changing business environment.
Equally as vital to the transaction is the execution of a successful deal. Ensuring all documents are properly signed and executed is the last but most crucial step of a successful business transactions. The closing step is where the seller relinquishes his ownership of the business while the buyer obtains all relevant shares and assets of the business. The transfer of ownership, thus the business itself. It is at this point that any outstanding payments required by the buyer must be completed, and other conditions fulfilled before the deal is closed.
How to Find the Right Business Purchase Attorney
Choosing the right business purchase lawyer can be a daunting task, given the complexity involved in considering all the variables playing into the potential success of your transaction. While you’ll want to avoid simply selecting the first name you come across, you don’t need to leave no stone unturned. You want to be aware of these factors: Experience: If your business acquisition involves a unique industry or product, ensuring that you’re working with a lawyer who has experience in that area will be key to securing the most advantageous deal for you. Expertise: Again, depending on current market conditions, the expertise required of a business purchase will vary. If you’re looking to purchase a particular type of business, you’ll want to secure a deal with a lawyer who has the insight to navigate the nuances of that process. Client Testimonials: If a lawyer has a long track record of successfully ensuring the most beneficial business acquisitions for his or her clients, chances are that you’ll have a beneficial experience as well. Communication: You want to ensure that you’re getting the most out of your business acquisition deal. Having a lawyer who is able to communicate effectively with you and walk you through all the aspects of your deal is essential to making an informed decision.
Common Legal Issues Facing Business Purchases
What if the business has certain contracts with suppliers or customers? Can one easily transfer the ownership of such contracts? If the business has been in operation for some time, are there any lawsuits or potential lawsuits outstanding that one needs to be aware of? For example, what happens to an employer-employee relationship once the acquisition has completed? What is the tax liability and what are the estate planning issues which may arise from the transaction? The list goes on and on.
A business purchase lawyer can legally assist you with negotiating and drafting a binding business purchase and sale agreement which would address many of the items identified in the above list. For example , the lawyer may craft indemnification provisions (representations and warranties) to protect you from certain known and unknown legal liabilities and close any loopholes where seller could fault you for ignoring such items even though you were not advised or could not have known about them.
What You Need to Know About a Business Purchase Attorney’s Fees
When it comes to hiring a business purchase lawyer, there are a number of cost factors that will come into play. All lawyers charge differently on a broad range, and most have the same general payment structure. An hourly rate, retainer fee, retainer replenishment, and other fees that arise are standard in the industry. However, to better understand how the costs for a business purchase lawyer accrue, and what you can expect as the transaction progresses, it’s best to understand some of the basics when it comes to business transactions.
First, the retainer fee. As the name implies, a retainer fee is a reservation of legal services that sets aside hours for your business lawyer for the timeframe that your retainer lasts. The retainer replenishment is the calculation that occurs after you have utilized all of the retainer fee hours, to put more fees in escrow. Typically, the replenishment calculation is based on regular hourly billing (although your business purchase lawyer may decide on a flat rate for the replenishment).
Second, will an outside party be involved? When purchasing a business, if real estate is involved, your business purchase lawyer will usually recommend an outside lawyer specializing in real estate to help facilitate the transaction. Likewise, if the company you are purchasing specializes in technology, many times you’ll want a lawyer who has experience with technological companies. In all of these cases, you may have to pay outside legal fees to additional lawyers to complete the transaction. This is completely normal, and while not necessarily costly, it pays to know that this overhead is part of the process.
Hourly rates are likely your lawyer’s most expensive component of his or her practice. In addition to their hourly rate, there is typically some overhead to pay including the potential that a case requires or takes up more of your business purchase lawyer’s time than originally estimated or some other type of expense that would be charged to you as the client. Hourly rates should be among the first things you determine when hiring a lawyer since most other fees accrue based on the hourly rate. Not all lawyers charge the same rate. For example, although an hourly rate may $200/hour, it does not mean the business purchase lawyer with the lower hourly rate will do a worse job than the one with the higher rate. That said, sometimes higher hourly rates are reflective of a well-known and highly top-tiered lawyer or a law firm, which may be worth considering if you’re dealing with a high value transaction where you need the number one lawyer in the field to handle it.
The retainer fee, as mentioned above, is typically the first amount of money you will give to your lawyer. This is to "hold" your lawyer’s time (i.e. ensure that they are available only to you for project work during the timeframe of the retainer). It goes without saying that the bigger the transaction, the larger the retainer fee.
It is also important to realize that throughout the process, in-between hours, there will be other fees that arise. Your business purchase lawyer may have someone review documents, or go to your bank with you to transfer funds. They may consult with your financial planner, or other professionals. There are many different things that can come up, and it is wise to ask your business purchase lawyer what to expect.
Many small business purchases closing can be handled remotely, especially when the parties are close in proximity to the lawyer’s office, although in an age of digital communication and electronic signature software, many deals are done 100% remotely. Sometimes your business purchase lawyer will have to go in and register various documents with the company’s home jurisdiction or industry regulator. This will incur additional fees, but may also be lumped into the overall fee arrangement (consult with your business purchase lawyer about their fee policies).
Examples of Successful Business Purchases with the Help of a Business Purchase Attorney
When it comes to making successful business purchases, seeking the guidance of a skilled business purchase lawyer can be invaluable. These professionals are experienced in the complexities of business acquisitions and can help clients navigate the process from start to finish. In this section, we will examine three case studies that demonstrate how a business purchase lawyer played a critical role in ensuring a successful transaction for their client.
Case Study 1: Pharmaceutical Company Acquisition
In a major acquisition deal between two pharmaceutical companies, the buyer’s business purchase lawyer played a key role in vetting the transaction. They conducted rigorous research into the seller’s assets and liabilities, and identified potential intellectual property issues that could have stalled the acquisition. By addressing these concerns in advance and negotiating favorable terms, the lawyer was able to protect their client from potential losses and delays, resulting in a smooth and successful acquisition process .
Case Study 2: Restaurant Franchise Purchase
A real estate developer sought the assistance of a business purchase lawyer in acquiring a series of restaurants in a growing metropolitan area. The lawyer assisted in the due diligence process, which revealed negotiation opportunities to add certain locations to the list of assets being acquired. The developer purchased the original restaurants for hundreds of thousands less than he would have without any assistance. Subsequently, his first restaurant earned over 9 figures in sales at the end of the first year, and the revenue continued to grow at 20% per year for the next 4 years.
Case Study 3: Technology Start-Up Acquisition
When a start-up technology company was looking to acquire the source code of its main product, their business purchase lawyer was instrumental in the negotiations. By conducting a thorough review of the software and its underlying code, the lawyer was able to structure the transaction as a simple licensing deal, rather than a full acquisition. This saved the start-up thousands in taxes, and allowed them to re-coup their investment within the next few years from the licensing fees.