Buying a Business: Maximize upside and Minimize risk - What to Know When You Buy a Business

Buying a business can be a huge undertaking for both the buyer and the seller for different reasons. Purchasing a business is much more involved than say, purchasing a home. It is incredibly important to make sure all the details are accurate and that the transfer complies with the governing business documents and even contracts with third parties. Beyond just the money involved, the business assets (including real estate), existing contracts and leases, insurance, and other factors must be taken into consideration before a sale should take place.

What is being purchased?

It is important to understand what is being purchased. Is it the entire company? Is it the purchasing of a majority of stocks of a company? Or is it just the assets of the company? These details can have major effects on the structure of the sales agreement and those details must be known to ensure compliance with the company’s governing documents.

What do you, as the purchaser, need to be aware of?

Regardless of what is being purchased, it is important to review the business’s licenses, contracts, and agreements to make sure everything is accounted for, correct, and up to date. If the business owns property, you will also need to do due diligence on the property by performing inspections and ensuring compliance with applicable laws. Having an attorney involved can help make this process much more manageable.

The Sales Contract

Once you’ve agreed to the sale of the business, it is recommended to have any taxes that are owed prior to the sale paid. Next, you will need to formalize the agreement with a stock and/or asset purchase agreement, which will be the sales contract for the transaction. As with any contract, complete, accurate terms, clarity of language, and compliance with the law is paramount to avoid the potential of future litigation. If the agreement doesn’t conform to the requirements of a contract with a third-party, the business could find itself in breach of that contract, or the sale could be entirely voided if it doesn’t comply with the business’ articles of incorporation.

Conclusion

Whether you are purchasing the entire company, the stocks or interest of the company, or just the assets of a company, you will need to be detailed oriented in ensuring the accuracy of all documentation regarding the purchase. It is important to be as clear and as thorough as possible when negotiating and drafting a sales agreement. Because of the high level of detail needed to buy a business, it is recommended to seek legal advice/help. Geraghty Law Office can help make the business ownership transition a smooth process.

If you need help drafting, enforcing, or defending the purchase of a business, or have any questions about buying companies in Colorado, fill out an interest form today to see if GLO can help you. 

GLO has prepared this blog to provide general information on legal issues that may be of interest. This blog does not provide legal advice for any specific situation and this does not create an attorney-client relationship between any reader and GLO or its attorneys. GLO engages clients only through specific fee arrangements and signed engagement letters. GLO does not guarantee any results.