Legal Question in Business Law in New York

Re: Legal issues with a sales contract to purchase existing business

There are many issues that a buyer's lawyer experienced with purchasing a business addresses aside from reviewing the purchase contracts. Here are the two major categories, although there are others:

Due Diligence -- This is just a term of art used to describe a review of the underlying business. Your lawyer should meet with the business owner and his/her lawyer and accountant and ask questions whose main goal is to assess whether the business that is being sold is, in fact, as represented. Lawyers with experience in the area know what questions need to be asked depending on the type of business being bought. For example, if the business being bought has proprietary software, it is crucial to ask who worked on the development of the software, because if an individual who worked on it was hired as a consultant, he/she may have retained rights to the software (potentially reducing the value of the business). Aside from asking questions, the lawyer would typically review the existing contracts of the business to make sure that they can, in fact, be transferred without liability to the new owner. An easy example is a lease for the business -- virtually all commercial leases have provisions requiring the tenant to obtain the landlord's consent if the lease is to be transferred to someone else or if the ownership of the business changes hands.

Taxes -- Depending on how you buy the business, you may be responsible for back due taxes of the business, a possibility that always needs to be addressed in the purchase agreement. In addition, the the structure of the purchase may have a significant effect on the taxes you owe in the future. A good lawyer will help you identify these issues and structure a transaction that is tax efficient.

There are additional complicated issues that arise from vendor financing that you describe. For example, have you considered whether you should be entitled to withhold financing payments if you discover a misrepresentation in the purchase agreement � some people think that this is an inherent right in vendor financing, but it is not at all.

Typically, someone in your position would not only retain a lawyer, but insist that his lawyer draft the documents. Make sure, however, that the lawyer you retain not only knows what the issues to be addressed are, but also how to address them in a way that gets the deal done. A lawyer with little experience in this area can easily ruin a perfectly good business deal getting bogged down in infinite small details.

I would be happy to discuss this further with you. You may reach me at (212) 695-6400.

Best of luck.

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WARNING: This information is not intended to constitute legal advice and should not be relied upon for any purpose in lieu of consultation with appropriate legal counsel in your own jurisdiction.

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Re: Legal issues with a sales contract to purchase existing business

There are numerous reasons to get an attorney involved., but it is absolutely necessary. I have and I am currently involved in lawsuts that had my clients sought my help prior to signing the agreement, they would not be spending $10,000 and more to litigate. Depending on the complexity of the agreement, a standard buy-sell agreement can range between $1,500 and $5,000 to negotiate. Many of the legal issues most harming are those that the sellers attorney or the seller himself claim are "standard" or "boilerplate" While there are many standard and boilerplate clauses, they do not fit into every purchase agreement and the buyer should not be bullied into signing these types of agreements.

Feel free to contact me if need heklp with your agreement.

Re: Legal issues with a sales contract to purchase existing business

Simple. Hire an attorney to review the contract. They will charge depending upon the lenght & complexity of the agreement. It should not be overly expensive. If issues arise outside the agreement you will need another arrangement(insurance,labor, financial, taxes).

Re: Legal issues with a sales contract to purchase existing business

One of the main issues that you need to protect against is your liability for the businesses' prior debts (i.e., taxes, loans, claims, lawsuits, etc.) The last thing that you want to have happen is to purchase the business for $400k and be responsible for $600k of liability/debt. There are a multitude of other issues that need to be addressed in the contract and what is commonly referred to a "due diligence." Also you need to decide whether you should purchase the "assets" of the business or the "stock" of the business. There are advantages and disadvantages to both types of transactions.