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Buying or Selling a Business – The Purchase Agreement

Buying or Selling a Business – The Purchase Agreement

Maybe you are looking to become a business owner, expand your current business, or transition into retirement. Under any of these scenarios, there is a whole host of things to consider: How should you go about it? How do you protect your family? How do you minimize liability going forward? How do you minimize the tax implications?

If you are getting into a business, you can either (i) start one from the ground up by forming a business entity, or (ii) purchase a business that already exists.

If you are getting out of a business, you can either (i) dissolve the business and liquidate its assets, or (ii) sell the business to another person or entity.

If you aren't starting a business from scratch, or completely closing a business down, the process will probably (and should) involve a Purchase Agreement, which is a written contract between a Buyer and Seller of property (e.g. stock, assets, real estate, etc.). A Purchase Agreement typically contains a variety of provisions designed to clarify the nature of the transaction, the respective obligations and representations of the parties, and the timeline for closing the deal. In other words, a Purchase Agreement provides for a purchase or sale to take place and under what terms and conditions, but it does not actually effectuate the transaction. That is done via the execution of a Bill of Sale (for assets), Deed (for real estate), or other document.

In most cases, a Purchase Agreement will include at least some of the following "boilerplate" provisions:

  • Representations and Warranties - Who owns the property? Where do the signatories get their authority to carry out the transaction? Are their any liens or encumbrances on the property?
  • Non-Competition - Is the selling party entitled to be involved in the same type of business in the future? Where? To what extent? For how long?
  • Indemnification - To what extent is one party responsible to the other party for future liabilities and obligations?
  • Governing Law, Mediation, Arbitration - What happens if a dispute arises regarding the Purchase Agreement? Can one party sue the other party right away? Do they first have to engage in alternative dispute resolution? What state's law governs? In what court must a lawsuit be filed in?
  • Inurement, Assignment - Will the Purchase Agreement be binding on the parties' successors and assigns? Can the Purchase Agreement be assigned in the first place?
  • Survival - Do any provisions of the Purchase Agreement survive Closing? With respect to real estate, for example, all representations and warranties are "merged into" the Deed and are extinguished unless otherwise specified.
  • Notice - If a lawsuit is filed, or if there are other important communications regarding the Purchase Agreement, to whom must those be sent? At what address? By what means?

A Purchase Agreement is perhaps the most important document in the sale or purchase of a business. Each provision in the Purchase Agreement should be tailored to the specific needs of the client, and will depend on how the transaction is being structured.

If you are thinking about selling, purchasing, or even restructuring a business, contact the experienced business attorneys at Stubbins, Watson & Bryan Co., L.P.A.

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