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Business Valuation

Los Angeles, CA |

Is it illegal if by legal means you disclose everything about your business and yet because of excitement and emotion someone purchases your business for 15 times what it is worth.

If in the future this someone (the buyer of the business) has buyers remorse and sues you will it be a lawsuit that is handled in Federal court, a State court, or a local court of some type?

Please note that if someone is willing a lot more for a business I am not going to attempt to sway them away from it.

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Attorney answers 3

Posted

There is no such thing as a rescission right for buyer's remorse after the purchase of a business, unless such a term is specified in the purchase agreement - which would be unusual. Nothing will prevent a buyer from later suing you, but it is unlikely they will have a valid or meritorious claim, unless, of course, you failed to disclose material information. Any lawsuit brought against you would likely be in the Superior Court of California, in the county where the purchase agreement was entered. However, if the buyer is from out of state and the amount in controversy exceeds $75k, they may bring their claim in federal court.

This response is not intended, nor should it be construed as legal advice. Any information provided is for educational purposes only. To schedule an appointment for an attorney-client privileged consultation, contact me at 530-231-4949. The exchange of communications through Avvo.com and similar social media does not establish an attorney-client relationship with me or my office. Thank you.

Kevin Samuel Sullivan

Kevin Samuel Sullivan

Posted

provide there is no misrepresentation or failure to disclose then you are probably ok if they sue you.

Posted

Disclaimer: The materials provided below are informational and should not be relied upon as legal advice.

I am not clear based on your description, what business you sold, and how it was sold. A proper sale of business would somewhat resemble a real estate transaction. That is, the parties will enter a written agreement including representations and warranties by the seller, the parties open escrow, the purchaser conducts her/his due diligence reviews, and the transaction is consummated at the close of escrow. In this type of scenario, there is little room for "excitement and emotion" and the purchase price typically reflects the value of the business. I suggest you review your transaction documents with your own attorney to protect your legal rights.

Asker

Posted

It is a start-up that a larger competitor seems very exited about. My theory is that if someone is willing to pay more than what somethings is worth then I am not going to try and talk them out of it. I have not sold anything yet, just have entertained several offers which are extremely far away from reality.

Robin Mashal

Robin Mashal

Posted

(See Disclaimers Above): The better documented your transaction is, the more protected you will be. I highly recommend you retain business attorneys to help you prepare the transaction documents, etc.

Justin C. Lowenthal

Justin C. Lowenthal

Posted

I agree with Mr. Mashal, you truly MUST use an attorney to help you sell your company.

Asker

Posted

I never said I would not use an attorney in fact I am pro the idea of using one. The situation is just that I wanted to know if it would be OK to disclose everything and allow someone to buy my business for way more than what its worth.

Justin C. Lowenthal

Justin C. Lowenthal

Posted

I understand that, I am just emphasizing the importance of an attorney. In this situation, the business is worth what someone will pay for it.

Posted

Probably the only way a contract for the sale of a business could be rescinded is if there is some type of fraudulent representation or concealment of material facts. How a buyer evaluates how much a business would make in the future is an opinion, and it might be wrong -- or right. A client of mine "overpaid" $15,000 for some intellectual property from a kind of bankruptcy sale, and it came to be worth millions.
Work with the buyer on the due diligence -- and if the buyer doesn't perform the due diligence, make sure that the contract shows the opportunity was given. If the buyer ridiculously overpaid, the buyer may want to sue, but you want to be prepared. A good lawyer will help you document that now, which will save you a ton of money later. Avvo has quite a few good lawyers in the LA area who can help you. An ounce of prevention now can save a hundred pounds of cure later.
The law can punish immoral actions, but it does not stand in the way of stupid actions.

www.bayoaklaw.com. 510-208-5500. This answer does not create an attorney-client relationship. It is not legal advice, because it is only of a general nature. Please contact a lawyer qualified in your jurisdiction to discuss your situation in confidence, using your factual details. Avvo answers are only general legal responses. Item 9 of Avvo.com's Terms and Conditions are incorporated in this disclaimer as though it were printed here.

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