Purchase and Sale of Small Businesses
Whether you are buying or selling a small business, it is an important transaction. When you buy an existing business, you are buying into established operations and existing goodwill that may not be there when you start a business from scratch. If you are selling your business, you want to make sure that you negotiate to get what it is worth and that you actually receive payments, especially if there is a payment plan over time. Generally, both the buyer and the seller of a business may benefit from retaining a New Jersey business attorney who is experienced in the purchase and sale of small businesses.Protecting Your Interests as a Small Business Buyer or Seller
In some cases, there is a purchase of an entire business. However, some sales are more complicated and involve a part of the business' assets, some of its stock, seller financing, or a sale that requires the seller to remain involved as a consultant, minority owner, or employee. It is important to retain an attorney not only to assist with negotiations but also to draft the purchase and sale contract, which may also have a huge impact on how smoothly the purchase and sale of a small business goes.
The purchase contract will memorialize the details, setting forth the terms of the sale and the obligations and rights of both the buyer and the seller. Among other important terms, the contract will state a purchase price and the method of payment. The payment for a small business may be a lump sum payment, or it may be made in a series of installments over a prescribed period of time.
Both parties should feel that the agreement addresses their business interests. For example, a buyer may want to make sure that the seller is not going to sell the business and then compete with them to woo back clients. A reasonable non-compete clause may need to be made part of the agreement. Generally, in New Jersey, the reasonableness of this clause hinges on whether it protects legitimate interests, does not create an undue hardship, and is not injurious to the public. More latitude is given to non-compete clauses that are part of a purchase agreement related to a business than to those included in employment agreements.
The agreement should also specify which assets are being sold so that the buyer is not surprised if the seller walks away with particular items that they say are personal property. Assets might also include intellectual property, and in some cases, the agreement will need to specify certain restrictions on intellectual property, such as trademarks, copyrights, or patents. The parties will need to decide whether the buyer is hiring the seller's employees and assuming all of its liabilities.
Other important terms may include any due diligence that is provided, confidentiality provisions, environmental contingencies, conditions prerequisite, and any events that will result in a cancellation or voiding of the agreement or a particular term. The contract should also include remedies in case of breach.
For example, if the buyer stops making installment payments, what can the seller do about it? Remedies that the parties may provide include reversion of ownership, arbitration, assumption of costs, or retention of a deposit. There may be some form of collateral used for the purchase price.
Buyers should make sure to conduct due diligence. While the seller knows all of the aspects of the business, the buyer may not be fully aware of what they are purchasing. The buyer may need to look at the business' financial statements, records, customer lists, accounts receivable, accounts payable, and books. The buyer will need to make sure that the appropriate searches, such as a title search, judgment search, lien search, and tax status search, are conducted. A buyer's attorney can scrutinize the situation so that you know what you are getting in the bargain. For example, if due diligence reveals that there is substantial environmental contamination associated with a small business, you may want to be able to get out of the deal.
However, a seller may also need certain things during due diligence. A seller will not want a buyer to be able to back out whenever they feel like it. An attorney for a seller will make sure to draft an appropriate due diligence clause that restricts the situations in which a buyer may back out of the deal and provides the seller with the ability to check the buyer's ability to make future payments.Retain a Knowledgeable Business Attorney in New Jersey
If you are interested in the purchase or sale of a small business, you may have many legal needs. Our firm can help you with various small business matters. At the Grimes Law Firm, we provide knowledgeable representation to clients in Neshanic Station and throughout Somerset County, as well as elsewhere in the tri-state area. Our principal, Raymond A. Grimes, has over 25 years of experience in business law matters. He can also assist you if you need a commercial litigation attorney to navigate through a dispute. Contact us online or at (908) 371-1066 to schedule a free consultation.