A Complete Guide to Buying & Selling a Business

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The process of buying or selling a business can be challenging if you do not have any appropriate exposure in business before. You therefore need to carefully analyse the procedure of buying or selling a business.

There are few steps involved before you buy or sell a business. These steps will give you a fair idea regarding what needs to be done before you actually start the process.

Organise your business

In the sale of a business, all equities, liabilities, profit & loss statements, tax returns, ownership, and other information of the business will be reviewed. So, the seller needs to have the information ready.

The buyer of a business must be able to genuinely prove that the buyer can afford to purchase the business by ensuring financing, lines of credit and/or shore up cash positions.

Non-Disclosure Agreement

After the buyer sees an opportunity in the seller’s business and the seller agrees to entertain the buyer as a prospective purchaser, both parties’ trade secrets must be kept confidential. For the same purpose, a Non Disclosure Agreement (NDA) is required, irrespective of the fact whether the parties to the agreement know each other or not.

(a) the cost of the business or the method of valuation of the business;
(b) what assets or portions of the business are being purchased or sold, including what intellectual property will be included in the deal;
(c) whether there is any pending litigation or other debts that need to be avoided in the transactions;
(d) the goals of each party in seeking out a deal;
(e) timing of the deal – does it meet your needs and timeline;
(f) the money – finance terms, lump sum payments, escrow and so on;
(g) the involvement of the buyer and seller after execution of the purchase or sell agreement; and
(h) non – compete clause.

Create a Letter of Intent

The purpose of the Letter of Intent is to embody all agreed terms in writing from the time of negotiation, so that the party cannot say that there was a misunderstanding during the verbal discussion of the business terms for the purchase or sell agreement at any later stage.

(a) consideration and payments;
(b) procedure of completion;
(c) intellectual property protection;
(d) warranties;
(e) severability;
(f) non-solicitation clause;
(g) assignment;
(h) attorney’s fees;
(i) governing law;
(j) conflict of law; and
(k) arbitration.

Buying an established business or selling an existing one is a complex undertaking involving numerous considerations. Being unaware of the various financial and legal issues and procedures involved in such transactions might land you up in deep trouble. Therefore seeking professional advice is recommended. Furthermore, details relating to any transaction for sale or purchase of a business should be documented identifying the subject of transaction, consideration involved and expected obligations of the parties.

The decision to sell or purchase a business involves some essential guidelines to be followed by the seller or the buyer and these have been placed as follows:

(i) Asset purchase: In this form the buyer purchases a part or the entire of the seller’s assets.
(ii) Stock purchase: In this form the buyer purchases either all or a substantial portion of the seller’s stock and assumes all the debts and liabilities of the seller.
(iii) Merger: In this form the businesses of both the buyer and the seller combines to form a single new business.

(i) The minimum price which the seller expects from selling the business and the maximum price the purchaser is capable to pay for purchasing the business;
(ii) The manner of valuation of the business to be done either by way of financial statement valuation or by comparing the business with other similar sale and purchase;
(iii) Preparing and handing over the ‘Information Memorandum’ by the seller to the buyer comprising detailed summary of the business proposed to be sold. This includes information including history of the company and its operations, key management personnel, financial reports and divestment reasons;
(iv) Obtaining any or all relevant government approvals, licences and any renewal thereof required for the purpose of selling or purchasing the business;
(v) Identifying key value preservation issues like employee retention, transition planning and considering tax and accounting implications; and
(vi) Any matter which the seller and the buyer shall deem proper.

(i) The representations and warranties to be provided by the parties;
(ii) Tax liabilities of the parties while selling or purchasing the business;
(iii) Indemnities to be provided by the seller;
(iv) Obligations of the parties to maintain confidentiality;
(v) Applicable State or Territory law governing the terms of the contract; and
(vi) Dispute resolution through negotiation and mediation including reference to arbitration in case of any dispute or breach of the contract.