Buying A Business
Entity Purchase
If you are interested in buying a business, you are in the right place.
Buying an existing business requires careful planning and execution. There are many issues to consider before you buy a business. You can either buy the business entity or buy the business’ assets (buying a business’ assets). This page focuses on buying a business by buying the business entity, which requires addressing the following issues:
- Get Advice to Understand Your Options
- Negotiate LOI
- Negotiate Stock/Membership Purchase Agreement
- Due Diligence
- Acquire Funding
- Closing
- Manage Transition
- Evaluate Workers
- Evaluate Key Partners
- Evaluate and Update Contracts
- Protect Your Business with New Contracts
- Evaluate and Update Policies
- Reduce Your Risks with Advice and Planning
- Improve Your Business with PCC
- Grow Your Business with PCC
- Get Training for Your Team
- Innovate and Improve
Get Expert Advice
First, you must get the right counsel to help you on this journey. Private Corporate Counsel (“PCC”) business lawyers have the legal and business education, training, and experience to help you. They also have practical experience representing businesses in many sectors and operating business themselves, giving them added insight on what new entrepreneurs tackle.
There are many reasons to choose to buy the equity (shares of stock of a corporation, or the membership interest of a limited liability company) of an existing business and not only the business assets. The primary reason may be to take advantage of the company’s goodwill developed from years of delivering excellent service and exemplary goods. There may also be tax advantages and other strategic advantages as well. By purchasing a Seller’s assets, you may also be able to ensure that key relationships are preserved, and key licenses, permits, and other critical government issues are undisturbed. This will reduce the time and costs required to obtain new licenses and permits and preserve the current and future opportunities which the Seller may have spent decades cultivating.
During your consultation with Private Corporate Counsel, you will learn many of the other pros and cons of an equity purchase versus an asset purchase. After the consultation, you will have enough information to make an informed choice. Below are some issues that can be addressed during your consult:
- Buying a Business vs. Starting from Scratch Analysis
- Evaluating the Options Before Buying a Business
- Letter of Intent (“LOI”)
- Business Purchase Contract Negotiation
- Due Diligence
- Entity Purchase vs. Asset Purchase
- Tax Considerations with Buying a Business
- Workers Considerations with Buying a Business
Negotiate LOI
Once you have decided that you want to purchase a business and have identified the business you want to purchase, it is a good idea to negotiate a Letter of Intent (“LOI”), with the help of your Private Corporate Counsel. The negotiation will include several issues, including the following:
- Price Terms
- Assets of the Entity to be Purchased
- Key Dates for Disclosure
- Key Timeline for Due Diligence
- Negotiate the Scope of NDA and Confidentiality Agreements
- Negotiate the Contingencies of the LOI
- Negotiate the date to Move from LOI to Contract
- Analyze the Business Opportunity
Negotiate Purchase Agreement
Once you have negotiated a LOI and both parties have signed off, you will have an opportunity to do some preliminary due diligence. If you are satisfied with your initial due diligence, then it is time to begin to negotiate the entity purchase agreement (a Stock Purchase Agreement, if the target is a corporation, or a Membership Purchase Agreement, if the target is a Limited Liability Company). Consult with and leverage your Private Corporate Counsel to help you negotiate the key points to effectively protect your interests and maximize your potential to get a fair deal.
- Negotiate the Price and any Contingencies
- Negotiate & Identify the Physical Assets Being Purchased
- Negotiate & Identify the Intangible Assets Being Purchased
- Negotiate and Identify the IP Assets Being Purchased
- Negotiate the Assignment of Key Contracts
- Negotiate & Identify the Company’s Liabilities
- Identify the Key Timeline for Additional Due Diligence
- Negotiate Other Key Terms of Agreement
- Draft the Asset Purchase Agreement
- Continue to Analyze the Business Opportunity
- Negotiate the Deposit, if Any
- Negotiate Seller Financing, if Possible and Feasible
CAUTION: DO NOT ALLOW A BROKER, SELLER, OR SELLER’S ATTORNEY TO FORCE YOU INTO SIGNING THEIR AGREEMENT.
Conduct Due Diligence
The due diligence phase of the process is critical. With the help of your Private Corporate Counsel, consider and analyze all relevant issues, including:
- Obtain & Analyze Financial Statements for Past 3-5 Years
- Obtain & Analyze Tax Returns for Past 3-5 Years
- Verify Ownership of Tangible, Intangible and IP Assets
- Obtain & Review Key Contracts
- Obtain & Review Key Personnel Files
- Obtain & Review Key Vendor Files
- Obtain & Review Key Supplier Files
- Obtain & Review Key Customer Files
- Obtain & Review Bank Statements for Past 3-5 Years
- Obtain & Review Equipment Service/Maintenance Logs
- Obtain & Review Background on Company’s Principals
- Obtain & Review D&B Report for Company
- Obtain & Review Title Search on Company Real Estate
- Obtain & Review Company’s Litigation History and Cases
- Obtain & Review Company’s Organization Records
- Verify Seller’s Good Standing in Jurisdictions it Operates in
- Obtain & Review Company’s Auditor’s Letters Past-3-5 Years
- Obtain & Review Company’s Budgets and Plans
- Obtain & Review Company’s Internal Control Procedures
- Obtain & Review other Company’s other relevant records
Form Your Company
If our due diligence did not uncover any deal breakers, then it is time to begin the process of preparing to close the deal. Once you have reached this point, be prepared to invest the time, money, and focus on forming your company. Your Private Corporate Counsel can help you understand the differences between a Sole Proprietorship, Corporation, Limited Liability Company, and Partnership. Then, your Private Corporate Counsel can help you form the entity that is best you, and help you with the rest of the formation process, including the following:
- Corporation Formation
- LLC Formation
- Partnership Formation
- Joint Venture Formation
- Obtain your Federal Tax ID
- Obtain your State Tax ID
- Obtain your licenses
- Comply with City and County Codes
- Open Your Bank Accounts
Get Funded
While you should explore funding sources at the beginning stages, once you have formed your business, it is a good time to ramp up your funding search. This is especially true if you do not have the funds on hand or have not negotiated Seller’s financing. This is a good time to talk to your Private Corporate Counsel about the following:
- Buyer’s Resources
- Explore Seller’s Financing
- Friends and Family Analysis
- Traditional Lender Analysis
- SBA Guarantee Loan Programs
- Selling Equity in New Company
- Other Funding Options
- SEC and Mini-SEC Considerations
- Review and Final Negotiations to Closing Documents
Close The Deal
At closing it is important to have your Private Corporate Counsel present to ensure that you understand all of the closing issues and documents, that the correct documents are executed correctly, and that any unexpected issues get resolved.
- Prepare for Closing
- Closing Checklist
- Escrow Services
- Review, Analyze, and Advice on Closing Documents
- Ensure Assignments of Key Contracts
- Ensure Transfer of Title to Key Assets
- Ensure Warranties Survive Closing
Staff Your Company
Once you have closed the deal, you will need to evaluate the key workers who help you operate the business. At this stage, it is important to consult with your Private Corporate Counsel to analyze whether or not you have the right people (who want to work for you, understand what you need, and have the capacity to do the job), and how to structure the relationship between your company and its workers to strike a balance between minimizing their costs and maximizing their potential for the advancement of the company's goals. During this stage, you should discuss the following with your Private Corporate Counsel:
- Employees – Part-time vs. Full-time
- Independent Contractors vs. Employees
- Internships and other Training Programs
- Individual Contractors vs. Contracting with a Company
- INS Form I-9 Eligibility Verification
- Notification of Key Workers and Partners
- Volunteers
Strategic Partners
In addition to the workers who help you operate your business, it is also important to evaluate the key partners who can help you with the essential goods and services to maximize your potential for success. At this stage, you should consult with your Private Corporate Counsel on how to identify, evaluate, and choose key external partners, including the following:
- Accountant
- Banking
- Banking
- Vendors
- Private Corporate Counsel
- Consultant
Contractor Agreements
Having the right internal workers and external partners is essential. They also bring risks to your business. In order to protect your business, you need to have them all sign contracts designed to protect you and your business. Therefore, before you hire or engage any employee, worker, or partner, you should consult with your Private Corporate Counsel to learn how to identify and analyze the risks they bring, and develop strategies to minimize these risks, including negotiating, drafting and executing the right contracts.
- Confidentiality Agreements
- Dispute Resolution Agreements
- Drug Free Workplace Agreements
- Employee Agreements
- Independent Contractor Agreements
- Internet and Computer Use Agreements
- Joint Venture Agreements
- Loyalty Agreements
- Non-Compete Agreements
- Non-Solicitation Agreements
- Operating Agreements
- Shareholder Agreements
- Trade Secret Agreements
- Vendor Agreements
Policies & Procedures
While contracts are effective tools to protect your business against risks and threats from internal workers and external partners, you can enhance this protection by having good policies and procedures in place to guide your workers in their daily tasks and to ensure that everyone complies with the standards you set for the business. This will help create and maintain the positive culture you want and need to improve and grow your business. Therefore, it is a good idea to consult with your Private Corporate Counsel about the following:
- Anti-Discrimination Policies
- Anti-Harassment Policies
- ADA Policies
- Vacation, Sick Leave and Volunteer Leave Policies
- Pay and Overtime Policies
- Conflict Resolution Policies
- Performance Improvement Plan Policies
- Grooming and Dress Policies
- Media Policies
- Social Media Policies
- Crisis and Disaster Relief Policies
Managing Risks and Planning
Successful entrepreneurs recognize that there is always a risk to their business and personal assets since accidents do happen. They also recognize that changes in the environment, technology, and politics are unpredictable and can be devastating. They must take steps to protect their assets by creating a risk management plan. The earlier they engage in risk mitigation planning, the more chances they have of creating a plan that will be effective when they need it. Therefore, at the onset, it is a good idea to talk to your Private Corporate Counsel about the following:
- Asset Protection Planning
- Company Structure Planning
- Estate Planning
- Segmentation of Risky Assets
- Key Contracts to Limit Risks
- Key Insurance to Cover Risks
- Ready Access to Private Corporate Counsel to be Proactive
Hire Private Corporate Counsel
Entrepreneurs start a business to succeed, not only in their business life, but also in their personal lives. They want to achieve prime in their personal life cycle, relationship life cycle, family life cycle, professional life cycle, work/job life cycle, and their financial life cycle. If their business is into prime, they hope that it will generate enough profit to allow them to spend time on all of their life cycles, afford the things that will help them be the best version of themselves, and give them the opportunity to help others. In order to get their businesses in its prime, they must continually work on improving. They need a guide to help them maximize their time, energy and potential.
The Private Corporate Counsel’s membership program provides unlimited access to business professionals to help entrepreneurs through each step of the journey, and monthly coaching to address difficult issues and learn new concepts to ensure that they keep improving. With the help of Private Corporate Counsel, entrepreneurs can begin to transition out of “working in their businesses” to “working on their businesses.”
- Analyzing and Improving the Business Model
- Identifying and Understanding Key Customer Segments
- Developing Strong Value Propositions
- Developing Strong Customer Relationships
- Analyzing and Improving the Channels of Distribution
- Analyzing and Improving Key Activities
- Identifying and Sourcing Key Resources
- Identifying Key Partners and Forming Key Partnerships
- Analyzing Cost Structures
Analyzing and Developing Revenue Streams
Aspire Greatness
Success is also growing your business to increase sales, expand its market share, expand to other jurisdictions, and expand its offerings. When you are “working on your business”, you will have time to expand your knowledge, skills, experience and relationships. This will help you see the trends in your industry, and anticipate changes in the environment and technology, allowing you to identify opportunities that you are now ready to pursue. At this stage, it is critical to have your Private Corporate Counsel readily accessible to review and analyze the opportunities, and help you choose the right opportunity for the moment. This requires consistent communications between you and your Private Corporate Counsel to help with the following:
- Continually Analyze and Improve Your Business Model
- Continually Analyze and Improve Your Value Proposition
- Continually Working in Innovating
- Continually Working on Differentiating From Competitors
- Continually Identifying and Analyzing Trends
- Anticipating and Preparing for Changes in the Environment
- Anticipating and Preparing for Changes in Technology
- Analyzing Key Life Cycles & How They Impact Your Business
- Identifying and Analyzing Opportunities for Growth
- Taking Strategic Advantage of Opportunities for Growth
- Training Your Team to Make Sure They are Always Ready
Effective Tools
While contracts are an effective tool to protect your business against risks and threats from internal workers and external partners, you can enhance this protection by having good policies and procedures in place to guide your workers in their daily tasks and to ensure that everyone complies with the standards you set for the business. This will help create and maintain the positive culture you want and need to improve and grow your business. Therefore, it is a good idea to consult with your Private Corporate Counsel about the following:
Anti-Discrimination Policies
Anti-Harassment Policies
ADA Policies
Vacation, Sick Leave and Volunteer Leave Policies
Pay and Overtime Policies
Conflict Resolution Policies
Performance Improvement Plan Policies
Grooming and Dress Policies
Media Policies
Social Media Policies
Crisis and Disaster Relief Policies
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