Whether you are buying a car, house, or business, there is a process involved - sometimes a lengthy one. When it comes to buying a business, the legal steps are one of the most important aspects and not one to glaze over. We are here to help you identify the critical legal steps to purchasing a business in the most seamless way possible.
Let's dive in 👇
1. Find a Business of Interest
First things first - let's find out what kind of business you would like to own. Finding your new entrepreneurial enterprise is an exciting task, however, ensuring their buyer package information is complete and accurate can be an arduous task. To help with this, DealBuilder provides careful due diligence services while registering businesses for sale, ensuring you are presented with current, valuable, and vetted information. All you have to do is find a company that is a good fit for you.
2. Hire a Corporate Lawyer
It is essential to involve a corporate lawyer once you're serious about moving forward. They are experts in business transactions, and will assist you in all legal facets including document review, clarification, drafting, and execution of required documents. You don't want to be asking your family lawyer or anyone that practices outside of the corporate law field, as M&A work is technical and requires a substantial amount of experience. Our advice is to ask around and get to know a few - you want someone that's easy to access and whom you enjoy working with. (If you're in need of a recommendation, we have a list of trusted partners and professionals that we can provide.)
3. Write a Letter of Intent (LOI)
After finding the right business, the next step is to write and present a non-binding Letter of Intent (LOI). An LOI is a pre-contractual document between two parties that is intended to enter into a binding agreement. An LOI is useful as it sets out all the terms and conditions of a deal on paper, helping avoid confusions that can occur from ‘handshake deals’. (Don't worry - the DealBuilder platform provides templates) Further, the LOI shows the Seller that you are serious about buying the business and moves the deal to the next step in the process - due diligence.
4. Conduct Due Diligence
This is where your lawyer shines. After signing the LOI, the Buyer and Lawyer begin the due diligence process. This is where you conduct a thorough examination of company finances, contracts, projections, employees, taxation documents, and anything else you might need to operate the business.
5. Draft a Purchase & Sale Agreement
Concurrent with due diligence, the Buyer’s lawyer will prepare the legally binding ‘Purchase & Sale Agreement’ elaborating on the terms outlined in the Letter of Intent (purchase price, closing date, and more legal terms/protections). Once the draft is completed, it is presented to the Seller’s lawyer for review and edits. The document then goes through a series of back-and-forth edits between both lawyers, where they typically negotiate various legal terms. Our advice, generally, is to allow the lawyers to squabble over specific legal details (for example, which jurisdiction should governing law apply) but not business terms such as the offer price, performance payments, training terms, etc. Not only is it expensive to have lawyers negotiate these business terms - they often aren’t the most qualified people to do so. Instead, either negotiate these business terms directly with the Buyer/Seller or utilize your Business Broker or Deal Manager to help you.
6. Close Deal and Complete Transaction
The final stage is closing (queue celebratory happy dance 🕺🏼). When each party is happy with the final terms, final negotiations occur. After reaching an agreement, both Buyer and Seller sign the Purchase & Sale Agreement, funds are transferred, and the deal is closed.