You’ve decided to buy an existing small business. Let’s say the owner has decided to retire and you see this as a great opportunity to take over a profitable enterprise. You’ve negotiated the purchase price with the help of your accountant and now it’s time to enter into the sales agreement. How should you proceed?
As a first step, the seller will have their attorney prepare the sales agreement. Now is the time, if you haven’t already done so, to retain an attorney familiar with buying and selling small businesses.
When I represent buyers, my first concern is that the transaction is structured as an “Asset Purchase” rather than a “Stock Purchase.” If the business is owned by a corporation, the seller may seek to sell you the stock of the corporation. As a purchaser, this is risky. If you purchase the stock of a corporation, in addition to acquiring the business assets, you will also be assuming all of its liabilities, such as unpaid taxes and lawsuits. Not assuming these potential liabilities is a major advantage of an asset purchase.
If the seller agrees to an asset sale, what provisions should a Purchaser ask to be included in an Asset Purchase Agreement? Stay tuned for my next post…