Purchase of a business

What contracts are involved in purchasing a business?

There are various types of contracts to consider depending on the type of purchase (stock sale vs. asset sale, etc.). Purchasing an existing business has numerous benefits such as established business, physical location, employees, and customer base, saving the buyer the time and energy required to start a new company. However, a buyer should still be diligent carefully review the financials, contracts, and relationships of the business before taking any action. Talk to an attorney – An attorney can review, draft and negotiate contracts to ensure everything is in order for the sale.

Do you need to involve an attorney when purchasing a business?

Purchasing an already established business is appealing to many individuals because it is less expensive than attempting to start up a new business; however, consulting with an attorney can help you understand certain risks associated with the business, such as:

Potential litigation the business has faced, currently facing or may face in the future
Intellectual property: what patents, copyrights, trademarks, or trade secrets the business holds
Local zoning, ordinances, laws, regulations etc.
Commercial leases and contracts can be assigned or transferred to the new owner
Business licenses and permits need to be transferable
Title to business assets
Tax and tax liabilities

Value of the business. There are many methods to determine value, but the most common are:

Cash flow method
Capitalized earning approach
Excess earning approach
Tangible assets or balance sheet method
Value of intangible assets method

Certainly purchasing a business can be a complex process with several legal formalities. An attorney can help ensure that your interests are represented in the agreement.

An attorney can help you negotiate the business contract or asset purchase agreement to include: Real estate holdings, leases, or other land rights; Employment agreements; Covenants not to compete; Security agreements; Business assets (vehicles, equipment, supplies, etc.); Intellectual property rights: Patents, Trademarks, and Copyrights; Business inventory; Franchise documents if applicable, and other important aspects of the business and contract.

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