Whether you are buying or selling a business in Massachusetts, completing the transaction without the help of a business lawyer is extremely risky. You could find that you have assumed liabilities that you did not anticipate, that you still do not have the full control of the business that you expected to have, or a whole host of other problems and setbacks.
The small business attorneys at the Katz Law Group have helped business owners in Massachusetts buy and sell companies for decades.
What Needs to Be Covered in a Sale
Buying or selling a business is not a simple endeavor, especially if the business has been around for a while or it has employees or is involved in ongoing litigation. If you are buying or selling the business outright, everything has to be transferred from the seller to the buyer. This includes:
- Business assets
- Business liabilities
- Contractual rights and obligations, including those in a commercial lease
- Trademarks and intellectual property
- Inventory
- Licenses or permits
If anything is left out of the transaction, the buyer is put in a very bad position where they either cannot run the business that they just bought, will have to scramble to find alternative solutions, or will be operating without being in compliance with the law. Meanwhile, the seller will often face allegations of misconduct and will have to continue to interact with the business that they thought they were done with.
Additionally, buyers will also generally want to prevent the seller from simply starting up a competing business down the road, taking their old customers with them. A non-compete agreement is a common addendum to the sale documents.
The Importance of Due Diligence
Like with most other complex business transactions, most of the legwork is done in the months leading up to the closing date, when the sale contract is finally signed and the business changes hands. During this period of time, the buyer does their due diligence by inspecting every aspect of the business they are thinking about purchasing.
If this inspection is not thorough, the buyer runs the risk of not finding warning signs about the business or will end up paying more than the company is actually worth.
However, the seller has concerns during this process, as well. The company has trade secrets to protect from competitors who may be willing to act like eager buyers, as well as sensitive financial information that they want to keep private.
These conflicting interests create a sensitive negotiation process that can quickly become heated with allegations of the seller's obstruction and the buyer's ulterior motives. Without the professional guidance of an experienced business lawyer, these legitimate concerns can get in the way of the sale and kill the deal.
The Transaction Process
If the buyer is satisfied with the results of their initial round of due diligence and are still interested in moving forward with the purchase, the next step is crafting a letter of intent.
Also known as a Memorandum of Understanding, this important document details the buyer's expectations for the upcoming negotiation process. It often includes things like:
- The proposed sale price
- A closing date
- Exactly what is included in the sale
- A non-disclosure agreement to keep the negotiation private
As the negotiation continues, the terms of the letter of intent can evolve. In some cases, its terms can even get violated by one or both parties without killing the deal, if both the buyer and the seller want to see it through.
More due diligence follows, as the interested buyer investigates the inner workings of the business more and more closely. Increasingly sensitive information gets provided, such as:
- Business tax returns
- Legal documents from pending litigation
- Commercial lease agreements
- Company balance sheets, revenue statements, and cash flow information
In all, information obtained during this step kills around half of business sales, as prospective buyers learn something about the business that they consider to be a deal breaker.
If the buyer is not deterred by the new information that has been uncovered, they would typically then have to put together the financing necessary to complete the purchase. This often comes in the form of a loan, though other fundraising methods are available in some cases.
While the buyer secures the financing, the details of the purchase agreement are hammered out. The final document is the culmination of what can be an extremely grueling negotiation process. Once that is signed and the funds have been transferred, the buyer takes over the business and becomes responsible for its operations.
Third Parties are Frequently Involved in the Transaction
Businesses do not exist in a vacuum. When a company gets bought, a wide range of third parties are affected by the change in ownership or develop an interest in the transaction. Just a few of them include:
- Vendors
- Current and former employees
- Insurance companies that cover the business
- Commercial landlords
- Independent contractors
- Banks providing a loan to cover the costs of the sale
For business owners who have never bought or sold a company before, it can be difficult to keep all of these parties in line.
Not All Sales are the Same
While outright purchases of a business are generally what most owners think of when they are looking to buy or sell a company, there are other options, as well. For example, business owners of a corporation can sell portions of their stock, or can sell off some or all of their assets. Depending on your needs and interests, including your tax liabilities, one of these other forms of sale may be better for you.
Business Attorneys at the Katz Law Group Serve Central Massachusetts
The business lawyers at the Katz Law Group have been helping business owners and buyers for decades in central Massachusetts. Call them at (508) 480-8202 or contact them online for help in Worcester, Marlborough, Framingham, Norfolk or Middlesex Counties, or the MetroWest area.
