In Part One of this series, WFJ’s Small Business Team recounted a business asset purchase which suffered on the back end due to poor planning at the outset. In Part Two, our team provides a brief overview of the considerations and steps we take in guiding our small business clients, both from the seller and purchaser perspectives.
Although there is much a business owner can do to increase the value of his or her company and get things in order prior to a prospective sale, and much a prospective purchaser can do to research potential opportunities, for the limited purposes of this article we must focus on the initial stage as the parties engage one another to explore the possibilities of a sale.
First and foremost, if the parties have not consulted with and engaged a team of professionals to provide counsel throughout the transaction, that step should be taken at the outset. At a minimum, a party to an asset purchase transaction should consult with an attorney, CPA, and insurance professional.
This is a time in which attorneys can issue-spot for details with significant practical and legal implications. For example, a prospective purchaser should complete due diligence in a number of areas, including, but not limited to: (1) Payroll/employees, (2) Contracts with assignment limitations, (3) UCC filings, (4) Real estate/title issues, (5) Notes/mortgages/liens, (6) Letters of credit, (7) Entity/state registration issues, (8) Corporate governance/recordation of corporate authorization for the sale,
(9) Banking issues, (10) Tax clearance, (11) Announcements/press releases to customers, suppliers, employees, (12) Assets to be sold/excluded from sale, (13) Loss/damage prior to closing, (14) Governing law, and (15) Dispute resolution. Again, this list is not exhaustive, but provided in order to demonstrate the potential for complex issues arising as part of the transaction.
Once the parties are on the same page with regard to (1) through (15) above, which might be detailed in a Letter of Intent, the parties may be ready to commence drafting a Business Asset Purchase Agreement. In addition to addressing the items listed above, a well drafted Business Asset Purchase Agreement will detail the seller and purchaser obligations, seller and purchaser representations and warranties, payment of purchase price, default, security or financing for the sale, any conditions precedent to the transaction, prorations, closing and relevant exhibits. The Business Asset Purchase Agreement is a legally binding memorialization of the terms of the sale, so every detail must be carefully considered and reflected in accurate, unambiguous drafting.
Please consult the WFJ Small Business Team with any questions relating to the sale or purchase of a small business.
Attorney Nicholas N. Sperling