Buying and selling a business already has so much on the line, and many pieces need to fall into place. This process requires significant planning, preparation, and, most importantly, knowledge about the legal terrain. Unfortunately, many business owners commit blunders that cost them big money during the sale process and could have been easily avoided with appropriate know-how. Even seasoned pros run into legal pitfalls. Avoid these typical mistakes when buying.
1. Inadequate due diligence
You must pay considerable attention to due diligence—reviewing all legal, contractual, and financial documents. The consequences of skipping this stage can be disastrous and lead to monetary loss. View the company's liabilities. Check to ensure the seller has provided all the necessary facts. If you do not consider the details closely, you risk taking over hidden problems.
2. Poor contract drafting
Every sale depends on a good contract. Conflicts can arise when agreements are poorly written or overly ambiguous. Ensure that the sales contract clearly outlines all the terms. Include details on warranties, asset transfers, and payment terms. Avoid generic models and adapt the contract to correspond with the nature of the arrangement.
3. Overlooking employment policies
When ownership of a company changes, it affects the workforce. Ignoring the employees could ultimately lead to lawsuits. Check out the existing employment agreements. Examine the company's obligations concerning staff allowances, severance pay, and other related matters. Also, compliance with local employment laws must be ensured. Examine whether the new ownership necessitates the resignation of critical staff members.
4. Neglecting regulatory compliance
Different sectors have different regulations. Ensure that the company adheres to all relevant rules. Search for outstanding violations or penalties. Repercussions for non-compliance may lead to penalties or halt the sale. If business licenses and permits can’t be assigned to the buyer, then buyer needs to understand how they can obtain and have the requisite businesses licenses and permits in place before they purchase the business.
5. Misvaluing the business
The accuracy of your valuation is crucial. Undervaluation means taking less for your business; if a buyer thinks the business is overvalued, they may be scared off. Ask a specialist appraiser to help determine the fair market value of the target business. Make sure you include both intangibles and physical assets. A well-founded appraisal promotes confidence and helps to avoid conflicts.
6. Not checking financing
Check to ensure the buyer has financing in place before finalizing a sale. This stage often leads to delays or failures in transactions. Analyze the buyer's financing approach. Consider demanding proof of income or a deposit. This assures you that the buyer is serious and can close this deal.
7. Disregarding confidentiality
Revealing delicate information too early might hurt the target business. Safeguard data with non-disclosure agreements. Limit access to private information until the buyer commits. A breach of confidentiality could jeopardize the business’s value and brand.
8. Lack of legal guidance
Disregarding the necessity for legal guidance could prove fatal. Given the intricacies of business sales, it is necessary to have a detailed understanding of commercial law. Consult an experienced attorney to review paperwork, negotiate terms, and identify potential risks.
Conclusion
Negotiating a corporate transaction's legal terrain requires meticulous preparation and attention to detail. Fixing these common mistakes should ensure a smooth and successful negotiation. Make sure to plan ahead and obtain legal advice. Avoiding these mistakes could be the line between success and failure in your business purchase or sale.
Please contact Serna Legal Services at 312-601-9859 or info@sernalegalservices.com if you’d like to learn more about protecting your business's trade secrets. If you’re ready to protect your trade secrets, we can work with you to help you protect your valuable intellectual property!
This content is published by Serna Legal Services, LLC and is available for informational purposes only and is not considered legal advice on any subject matter. By viewing this content, the reader understands there is no attorney-client relationship between the reader and the publisher. The content should not be used as a substitute for legal advice from a licensed professional attorney, and readers are urged to consult their own legal counsel on any specific legal questions concerning a specific situation