This blog series explores the steps involved in buying and selling a business. In prior blog posts, I discussed the need to start off with a letter of intent, the intricacies of the due diligence process, financing options related to a business purchase and sale transaction, and the seller’s potential role in the business after the purchase and sale transaction has been completed. This blog post, the final blog post in this series, will discuss concluding a business purchase and sale transaction.
As described in an earlier post in this series, the letter of intent provides a roadmap to the purchase and sale transaction. When the process moves to due diligence, the letter of intent serves to guide many of the purchaser’s inquiries to the seller. And, when it’s time to conclude the transaction, the letter of intent again provides the outline of the ultimate agreement. The closing agreement often follows the letter of intent but is much more lengthy in flushing out the details involved in each and every aspect of in the purchase and sale transaction. Additionally, in many cases, the terms and conditions of the transaction have been revised along the way as valuable information was gathered during the due diligence process. Those changes are brought to fruition in the closing documents.
As described in a previous post, the purchase and sale of a business involves either an asset sale or an entity sale. If it’s an asset sale, the purchase and sale transaction will be concluded with the finalization and execution of the Asset Purchase Agreement. If it’s an entity sale, the final agreement will be a Stock Purchase Agreement for a corporate entity or a Membership Interest Purchase Agreement for a limited liability company. In either case, a variety of addendums will likely be attached to the closing agreement including key financial documentation that both parties relied upon extensively in entering into the agreement. Also, a variety of schedules may be attached such as schedules of assigned contracts, liens, and pending litigation. And finally, various “side agreements” may also be finalized as part of closing the transaction including personal guarantees, financing agreements, employment agreements, the bill of sale and various assignment agreements.
In short, as you can see by reviewing this blog series, the purchase and sale of a business is dramatically more involved and complicated than many small business owners realize. Often, months of analysis, preparation and extensive negotiations regarding the closing documents are involved. For both the purchaser and the seller, carefully proceeding forward with the advice of an experienced business advisor, accountant and attorney is the best way to achieve the desired result. If you need assistance, please give us a call. We’d love to help.
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