Purchase and Sale of Business
Buying or selling a business can be a complex process that should not be undertaken without the help of an experienced business law attorney. Buyers must analyze the business up for purchase and determine acceptable sale terms. Sellers have to decide whether to sell assets or stock and at what price. There is also a lot of documentation involved, including documents needed to evaluate the company and relevant purchase agreements. An experienced business attorney can help you make informed decisions and structure a deal that protects your interests.
More specifically, an attorney can advise you on things like what to sell or buy from the business: Since this can affect the structure of the deal as well as the price, this is a very important decision. The most common transfers of ownership are an asset purchase or a stock sale. An asset purchase involves the purchase and sale of some or all of the company’s assets and liabilities, including, equipment, vehicles, machinery, land, leases, copyrights and other intellectual property. A stock sale involves the sale of the company’s ownership interests rather than specific business assets. In a stock sale, the business is valued and sold as a whole.
Sellers can sometimes benefit from an asset sale because it allows them to keep certain assets like intellectual property rights. At the same time, it allows buyers to avoid taking on undesirable liabilities. This approach, however, can be much more time consuming since each asset has to be individually valued and transferred. Generally, sellers prefer stock sales because it involves selling the entire business, including current and future liabilities. Stock sales tend to be faster and less expensive. And buyers can mitigate the risks through the use of appropriate representations, warranties, and indemnities in the purchasing contract.
Before moving forwards with buying or selling a business, both parties must engage in the process of due diligence, where they investigate each other and the business. This allows both parties to assess potential risks by examining assets, liabilities, operations, legal documents, and business relationships. Buyers can request documents related to the seller’s corporate structure, financials, contracts/legal documents, intellectual property rights, and compliance with relevant laws. Our experienced attorneys at Xu Law Group can assist with this process.
Once the parties are ready to move forward, an attorney can draft either a Stock Purchase Agreement or an Asset Purchase Agreement that will contain all essential provisions, such as the names of the parties, included assets, purchase price and payment method, closing terms or conditions, representations and warranties, limits on liabilities assumed by the buyer, and any restrictive covenants (non-competition, non-solicitation, confidentiality/non-disclosure). There is so much that goes into a successful transaction, so it is essential to get good legal advice before purchasing or selling a business.