Due Diligence Considerations When Buying a Business
Due Diligence Reviews
Conducting a thorough due diligence review when entering into a business purchase transaction is imperative. Due diligence activities include investigations into the business’ financial statements, debts and assets, intellectual property, etc. There is no one due diligence activity that is more important than another. The key is to perform all necessary activities to discover the most adequate information for the purposes of taking over a business. Some activities will be more important than others depending on the business type or business structure. For example, a buyer of a family-owned bakery should be interested in customer lists as well as trade secrets involved in reproducing popular foods. Alternatively, a technology firm may inquire about any patents on file.
Contracts
Contracts review is as equally important for the business purchase transaction. Buyers should request all pending contracts of which the business is a party. Here is where it is best to engage a well-versed and experienced attorney. The buyer (or attorney) is tasked to review control provisions in the contracts that could be triggered by the buying of the business. Similarly, the buyer should review renewal, termination, pricing and duration provisions to determine how those provisions affect the purchase. Importantly, the buyer should review the assignability of the contracts to determine whether the business will remain a party to the contract after the business transaction is complete. If there are contracts that are set to expire, the buyer would want to know if he or she can take over the contract or form a new one. Another important review is to discover any existing verbal agreements. First, will the court honor those verbal agreements? If so, it is best to get those verbal contracts in writing. The contracts review is inclusive of written and verbal employment contracts.
Liabilities
A review of a business’ liabilities should include a review of all the debts of the business. These should include present and impending debts. The buyer is wise to compare all debts with the business’ assets to evaluate its net worth and solvency. The buyer should also evaluate the business’ legal liabilities as well as current and impending litigations. If there are any legal awards or judgments against the business, the buyer has to make sure that the litigation had truly come to an end. They must also inquire about who owns any legal liabilities after the transaction is completed. All these activities will help the buyer determine whether he or she should move forward with the transaction. The due diligence exercise will also reveal whether the selling party is trustworthy to divulge all requested information.
West Palm Beach Business Transactions Attorney
If you are in the process of buying a business or you are thinking of buying a business, we are here to assist you. Due diligence activities are best conducted by an experienced business transactions attorney who will advise on matters every step of the way. The West Palm Beach attorneys at the Law Offices of Larry E. Bray, P.A. possess years of experience representing businesses and individuals with their purchase transactions. We are here to ensure that your interests are fully met.
