Business Sales & Purchases

When a buyer purchases a business, it may acquire a range of assets, including intellectual property, personal property, and real estate, as well as the ongoing operation of the business. It is important for both the buyer and the seller to be represented in business sales and purchases, including the negotiation and preparation of an asset or stock purchase agreement. Sometimes risk exposure can be limited through the language of the purchase and sale agreement. At SAC Attorneys, our San Jose business sale lawyers represent clients on both sides of these transactions.

Business sales and purchases can bring up a range of complicated legal issues. Sales may be asset sales or entity sales. When the business entity is sold in its entirety, with all assets and liability and stock or membership interests, it is an entity sale. When only the assets are sold, the buyer can select which assets they want without assuming entirely unknown liabilities.

The business will need to be valued through research. It may be important for both a seller and a buyer to obtain an expert’s opinion about what the business is worth. Sellers should review all their documents to make sure that they are providing all the appropriate information to the buyer, and they also will need to prepare a selling memorandum.

The terms of purchase will likely need to be negotiated. Buyers and sellers may disagree on what a business is worth, and they may therefore disagree about the purchase price. Buyers and sellers may also disagree about the terms of financing and interest. Both parties should be careful in their representations and warranties to the other side. A business sale attorney in San Jose can advise buyers or sellers on how to avoid liability down the road.

A critical aspect of sales and purchases is due diligence. Buyers of businesses should conduct due diligence and require a seller to disclose all its liabilities related to the business. Even if a buyer does not assume the seller’s liabilities, there can be public relations aspects to matters that could give rise to liability, and these could affect the value of the business when they come up. The seller should be asked for disclosures related to employee wages, taxes, contracts that affect the property, what is owed to suppliers, and what is owed to past or present customers.

Once these disclosures are made, the buyer should go through all the information available about employees, including what their employment agreement says, and the benefits to which they are entitled. There may be a collective bargaining agreement in place, and buyers need to be aware of what it says and the history of union organizing at the company. When there are unionized employees, the buyer will need to figure that into a budget.

Tax liability is also important to investigate with the assistance of a San Jose business sale attorney. Buyers need to seek the seller’s representation that there are no tax liens on the real estate that they are purchasing, and that none can be asserted. Usually, it is also important to include language about who is responsible for tax liabilities. Certain taxes run with the land, which is another issue to consider.

Additionally, care needs to be used in reviewing existing contracts. A business may have contracts related to outside vendors or suppliers, maintenance, extra space, equipment, and furniture and phone rentals. Sometimes contracts can be assigned without the approval of the other party, but in some cases, approval is necessary. It may be possible and prudent for a buyer not to assume certain contracts.

The purchase and sale agreement for the business entity or assets is a vital document. It should include carefully drafted language related to the identities of the parties to the sale, whether business assets or the entity is being sold, the purchase price, the buyer’s and the seller’s representations, non-competition and confidentiality covenants, actions to be taken prior to the closing of the sale, a closing date, and exhibits of any relevant documentation that should be incorporated.

If you are considering buying or selling a business, you should consult SAC Attorneys. We represent clients throughout Silicon Valley. Call (408) 436-0789 or complete our online form.