HERE ARE 5 IMPORTANT LEGAL CONSIDERATIONS IF YOU ARE LOOKING TO BUY A BUSINESS.
Each business transaction is unique, and tailoring legal considerations to the specific circumstances of the acquisition is crucial for a successful and legally compliant purchase. Here are some key considerations when buying a business.
1. Due Diligence:
It is critical to conduct a thorough due diligence. This involves investigating the financial, operational, and legal aspects of the business. Verify the accuracy of financial statements, contracts, employee agreements, and any existing or potential legal liabilities. Identifying and understanding any existing legal issues can help you make informed decisions and negotiate terms effectively. We litigated a matter against a party who had refused to conduct a due diligence and thereafter sued our client for buying a company that was not a going concern. He faced tremendous difficulties at trial to establish liability as there was a clause in the contract that stated that he was buying the business on an ‘as is where is’ basis and would not be conducting any due diligence since he was already the managing director of the company and had knowledge of how the business was doing.
2. Agreements:
Drafting a comprehensive and well-defined purchase agreement is essential. This document outlines the terms and conditions of the sale, including the purchase price, payment terms, assets included, and any contingencies. Ensure that the agreement protects your interests and clearly defines the responsibilities of both parties. I have encountered clients who refuse to spend money on drafting an agreement, who then have to spend more money litigating.
3. Contracts and Liabilities:
Review all existing contracts, agreements, arrangements and liabilities associated with the business. This includes contracts with suppliers, customers, employees, and landlords. Identify any potential risks or issues that may arise post-acquisition. Understanding the transferability of contracts and potential liabilities is crucial in avoiding unforeseen legal complications. If you’re buying a business that has assets, please check that those assets are unencumbered.
4. Compliance:
Ensure that the business complies with all relevant laws and regulations. This includes industry-specific regulations, zoning laws, environmental regulations, employment laws, and any other legal requirements. Non-compliance can lead to fines, penalties, or even the closure of the business. For example if you’re looking to buy a restaurant- you need to know that some licenses are not transferable with the business or the premises and you will need to obtain fresh licenses under your name.
5. Employees:
Review existing employment contracts, benefits, and any ongoing legal disputes with employees. Consider the implications of the change in ownership on existing employees, including potential issues related to termination, severance, or the transfer of employee benefits.