Buying & Selling a Business
When entrepreneurs decide to place their business up for sale, it is essential to have experienced counsel review the plan to make certain the business owner's interests are protected. It is equally important to ensure that your interests are preserved when purchasing a business.Key Issues
Some of the issues to be considered and addressed in connection with a business sale or acquisition transaction include the following:
- Transaction structure – whether it is to be a sale and purchase of the target company’s assets or its capital stock. A variety of factors will enter into this decision, including tax issues, liability issues, customer relationship issues and personnel issues.
- If the transaction is to be structured as an asset purchase, whether the buyer will offer to employ existing employees, and whether the buyer will assume any existing liabilities (and if so which liabilities and up to what maximum amount).
- If the transaction is to be structured as asset purchase, how will the purchase price be allocated among the various assets for tax purposes.
- Whether the seller will be able to withdraw, immediately before the closing, that portion of target company’s cash which exceeds customer deposits and prepayments.
- How will the purchase price be payable (pay in full at closing, or pay part at closing and the remainder later...and if so, how much will be paid at closing).
- Payment terms for any part of the purchase price that is to be deferred (interest rate, frequency of payments, etc.).
- Whether the deferred purchase price (or any portion thereof) will be based on an earn-out or will otherwise be contingent on a performance metric (such as EBITDA, net profit, gross profit or gross sales) after closing.
- Transition period – whether the owner(s) will continue to work at the target company for some period of time after the closing, and if so for how long, in what capacity(ies) and for what compensation.
- Whether there is to be a post-closing noncompetition covenant from owner(s), and if so for what time period and in what geographic area.
- Whether the buyer’s obligation to close is to be contingent on institutional financing, and if so in what minimum amount, at what maximum interest rate and on what repayment terms (such as amortization over some minimum time period, monthly payments not exceeding a certain maximum amount, etc.).
- When due diligence would begin and what it would involve, and whether the seller will require a non-disclosure and confidentiality agreement before due diligence begins.
Our clients have found it highly cost-effective for most or all of the foregoing issues to be addressed, in summary fashion, in a non-binding term sheet or letter of intent to be signed by the parties before substantial attorney time is devoted to negotiating and preparing definitive agreements for the transaction. This way, if our client and the other side agree on the term sheet, our client will have the comfort of having reached an agreement in principle on the general contours of the transaction before incurring significant attorneys’ fees to negotiate and prepare definitive agreements; and if the parties cannot agree on a term sheet or a letter of intent, our client is able to avoid the expense of having attorneys prepare drafts of definitive transaction documents that would ultimately be rejected by the other side.
As a Stanford Law School graduate with over 35 years of legal experience, business attorney Alan Nopar has the legal knowledge, business acumen and professionalism to provide extremely competent representation to small- and medium-sized businesses and to entrepreneurs. Alan is one of only eight Bay Area attorneys named by Thomson Reuters both in 2020 and 2021 as a Northern California Super Lawyer for Mergers & Acquisitions.
The Silicon Valley law firm of Nopar & Associates is an AV Preeminent-rated law firm* focused on business and corporate law as well as real estate law. Our comprehensive knowledge in these legal fields enables our firm to provide effective and strategic representation in matters involving the following:
- Business purchases
- Business sales
- Business acquisitions
- Business mergers
- Other business transactions
Our firm negotiates and prepares purchase and sale contracts, evaluates business opportunity proposals, exposes potential risks and liabilities and facilitates closings for the purchase or sale of businesses in California.
To ensure that your rights and interests are fully protected when buying or selling a business, contact our law firm and discuss your needs with a distinguished business lawyer.