BUYING A BUSINESS IN TEXAS
4 TIPS FOR BUYING AN EXISTING BUSINESS IN TEXAS
Every deal is different, reach out to Tim Sutherland on the contact page if you are looking into purchasing a business and want to discuss the steps involved and the process. Working with a Texas business attorney can save you money in the future from headaches that can be avoided and ensure the deal goes as smoothly as possible.
1. HAVE THE SELLER AGREE TO EXCLUSIVITY WHILE NEGOTIATIONS ARE ONGOING
If you are negotiating, you don’t want the seller shopping around. While initial negotiations are progressing, negotiate a window and have a signed agreement in place to allow time to make the right deal. You don’t want to be rushed or pressured with a hard sell and the seller claiming there is another unidentified buyer interested and ready to move if you don’t commit. A couple of other reasons are to avoid a bidding war and to ensure you have the time to conduct the level of due diligence you feel is necessary to make the purchase on an informed basis.
2. DUE DILIGENCE
The value is based on many factors, and in order to avoid overpaying (or to attempt to underpay), the buyer should investigate the financials and underlying data, the operations, and any legal issues. One potential issue is to avoid lawsuits and liabilities, though the agreement will likely not assume any such obligations. A buyer may want to interview relevant parties to check out whether the seller is operating the business as claimed (customers, suppliers, management, etc.).
3. BUY THE ASSETS, NOT THE ENTITY
Typically, the buyer is presented with the option of purchasing the entity by way of buying the shares or other membership interests. Alternatively, the buyer can purchase the assets of the business and use a new entity organized for the new business or an existing entity. Purchasing the assets is a way to minimize the risk by drafting provisions to not assume liabilities and obligations. Thus, you take over the business, its property (intellectual and physical), customer lists, processes, trade secrets, etc.
4. CUSTOM AGREEMENT TO GET THE DEAL DONE
If you start using a form you found online, you are in trouble. The purchase of an entire business is definitely the time to consult with a lawyer to make sure everything important is considered and addressed in the agreement. All businesses are unique and so too should the purchase agreements for those businesses. As you are negotiating, there will be agreements and concessions which need to be carefully inserted into the agreement to capture the deal fully. Otherwise, small terms get overlooked and the parties’ expectations go unmet. Also, whoever the party is that submits the initial draft has to consider strategy — do you propose an agreement that the other side’s attorney will sign off on because it is friendly and fair, or do you propose an agreement that is a bit one-sided to protect yourself. The choice is typically based on how fast you want to close and the risks involved, i.e. for a great price you may want to close ASAP and get the deal locked down, but if all else is fair you may choose to negotiate over many terms.
If you are looking into buying or selling a business, reach out for a consultation early on in the process to Tim Sutherland on the contact page . Working with a Texas business attorney can save you money in the future from headaches that can be avoided.