Why Legal Representation is a Must
Corporate Attorney Bruce Brodkey Counsels New Business Owners
The decision to buy or sell a family business is typically the most significant investment and cash out respectively that a person can make during their lifetime. Unfortunately, times have long past where a handshake between parties was sufficient to close the sale of an established business. The rise of lengthier and more complicated purchase agreements and the increasing prevalence of governmental restrictions and regulations require that a sophisticated business person needs to assemble a team of professional advisors prior to undertaking such venture.
Smart investors, place competent professional advisors in key positions in this process. This team should include not only a knowledgeable law firm, but also an accountant, investment advisor and, depending on the type of transaction, business appraisers, real estate brokers, and construction experts.
In most occasions, the attorney should be involved from the outset and throughout the negotiation, due diligence periods and closing. That attorney can be of critical assistance in the following activities:
Choice of Entity
For Buyers, a decision needs to be made with the help of counsel as to whether a purchasing entity ought to be formed as a limited liability company, corporation or partnership. The client’s needs and the type of specific transaction often dictate the type of entity that should be formed.
The lawyer is best situated to negotiate the general terms and conditions of the agreement. While the lawyer frequently is not involved in negotiating the economic terms, counsel is needed where critical matters are to be negotiated. These include allocation of the purchase price between the various asset classifications, the protection of the client in the various warranties, representations, indemnities and from the creditors of the Seller.
In most agreements, Buyer has the right to conduct its “due diligence” regarding the business of the Seller. Frequently, this examination includes a thorough review of tax returns, profit and loss statements, qualified and non-qualified retirement plans, financing details, interviewing key personnel, performing environmental testing reviews and assuring that governmental regulations do not act as a significant impediment to closing. The lawyer and the other professionals, play key roles in these investigations, which is essential to an intelligent purchase of any business.
The lawyer is involved with the preparation of all required documents for closing. Typically these involve Bills of Sale, Promissory Notes, Non-Competition Agreements, Security Agreements, Leases, Option Agreements and a myriad other documents that may be necessary and convenient for final closing. No Buyer or Seller wants to leave the closing table with any documents not fully executed.
A lawyer is an integral person in an assembled team of qualified professionals to service the client in any business transaction. In my 43 years of practice, the early engagement of competent professional advice and guidance through the purchase or sale transaction is well worth the relatively small expense. Proceeding without the necessary team is fraught with potential oversights and probable problems after the fact.