I am buying a business that has been lasting over 33 years. The owner is retiring. He sells a high-end goods (over $7,000-8,000 average/piece) and has been very successful. I would like to know what kind legal documents I should prepare for this purchase. Although he seems a nice man, since I never have done this, I feel I should know all the basic necessary procedures. Thanks!
You really need to hire an attorney to do this. If you are making a purchase of a business with a significant amount of money, don't risk it by trying to take care of the contracts yourself. That would be pennywise and pound foolish.
No one on Avvo can tell you everything you might need, based on the limited information we can get from you here.
Good luck with your purchase, and I wish you the best.
Craig T. Byrnes
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Business buy-sell agreements are very complicated, as are stock transfers, and you're obviously spending a lot of money on this purchase, so it's really unclear why you're not hiring a business transactional lawyer to handle this. That's who can explain what documents are needed and what they mean.
"He seems like a nice man" is not the way to evaluate a business purchase. Have you done your due diligence?
Avvo doesn't pay us for these responses, and I'm not your lawyer just because I answer this question or respond to any follow-up comments. If you want to hire me, please contact me. Otherwise, please don't expect a further response. We need an actual written agreement to form an attorney-client relationship. I'm only licensed in CA and you shouldn't rely on this answer, since each state has different laws, each situation is fact specific, and it's impossible to evaluate a legal problem without a comprehensive consultation and review of all the facts and documents at issue.
As to your specific question, at a minimum, you will want a Asset Purchase Agreement with the caveat that if the seller is a corporation, you will need a slightly different document. With that being said, the real work is in the due diligence...visit one of the webgsites below...
Shawn Jackson ESQ. (707) 584-4529
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I concur with my colleagues. The list of essential issues is beyond the 4000 characters that Avvo permits.
Whenever I perform these services I make sure that a CPA is part of the team. I also make sure tehre are no lapses in insurance coverage. Finally, I run a litigation search in the county where the business is located.
The above is general legal and business analysis. It is not "legal advice" but analysis, and different lawyers may analyse this matter differently, especially if there are additional facts not reflected in the question. I am not your attorney until retained by a written retainer agreement signed by both of us. I am only licensed in California. See also avvo.com terms and conditions item 9, incorporated as if it was reprinted here.
I agree with my colleagues that you cannot prepare the required documents on your own and that retaining a lawyer is essential. One of my clients, a year before engaging me, bought an individual's business based on a letter agreement. It turned out that the business had an undisclosed liability that ended up costing my client hundreds of thousands of dollars.
Answering your question directly: You can start with a non-binding letter of intent. Then you, your lawyer and your accountant can conduct a written due diligence investigation. If you are satisfied with the results of that investigation, you can enter into a purchase and sale agreement for the business's assets or the ownership interest in the business (shares of stock, etc.), depending on the type of transaction that you and your advisors deem most appropriate.
The foregoing is only a rudimentary summary; additional documents and procedures may be required.
This information does not constitute legal advice and does not establish an attorney-client relationship.
Of course, I concur with my collegues that this is not a one-size-fits-all kind of issue. But you will want to consider how you will be buying the business. Will you by the stock or interest of the entity or the assets of the business? Anytime you consider a biz purchase you need to consider the due diligence first. Making sure you are not buying into a problem (whether known to the seller or not).
I would be happy to chat with you. If you would like to discuss further over a free phone consult, feel free to contact me anytime that is convenient.
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I agree with my colleagues that you should seek an attorney and a CPA. It is a great first step that you like the owner who has been successful. Next, you need to value either formally or informally the business to determine what is a fair price for the business. Additionally, you should conduct other due diligence to determine whether the business is a good fit for you and what is the likelihood of continued success..
The basic business purchase agreements would typically include a nonbinding Letter of Intent, Asset Purchase Agreement, possibly a Bill of Sale. Additionally, it is very important that you consider the existing commercial lease terms, and obtain an assignment of lease with landlord's approval. You also want to consider what type of business entity you should form to hold the business assets, whether an LLC or corporation. In circumstances where there is no lease, but rather a purchase of commercial property, you would want a separate entity to hold the real property.
Proper legal counsel on this transaction could save you lots of heartache and money down the road. Good luck with your decisions.