One commonly used method to structure the sale of a business is an asset sale, that is, selling the assets of the business. This is a preferred method for many as it allows the business to sell the tangible assets (e.g. furniture, equipment, inventory, etc.) and intangible assets (e.g. goodwill, contractual rights, domain names, etc.) of the business but not the business entity itself. This structure is attractive to buyers since the liabilities of the selling entity do not pass to the buyer in a properly documented and structured sale transaction.
The Process from Start to Finish
The process of an asset sale begins with negotiations leading up to a preliminary letter of intent or outline of basic deal terms, followed by a more comprehensive and binding Asset Sale and Purchase Agreement. The transaction is then finalized through a set of closing documents, which will differ depending upon the terms and structure of the transaction. Properly drafted closing documents will ensure the intended assets are conveyed, the intended liabilities remain with the selling entity, warranties and representations made during the sale are enforceable after closing, and owner financing (if applicable) is secured through a properly perfected security interest in the assets sold.
The Value an Experienced Attorney Provides
While certain legal matters may be addressed without counsel (e.g. small claims lawsuits in some situations), the sale or purchase of a business is one matter in which experienced legal counsel provides indispensable value. Often business owners do not include a budget for attorney’s fees when evaluating a transaction at the outset. However, legal representation can both protect against risk and liability and increase the value of the transaction for the represented party in an amount that greatly exceeds the cost of the legal representation itself.
For example, if the seller is offering owner financing, securing the loan through a properly perfected security interest in the assets sold is essential. This provides the seller with a useful remedy in the event that the buyer defaults on the loan. From a buyer’s perspective, appropriate warranties and representations that survive closing and protection from the seller’s pre-sale liabilities can prevent and protect the seller from significant and costly surprises down the road. Often these surprises arise after significant time and money have been invested in growing a successful business. For both the selling and buying parties, indemnification that includes attorney’s fees and costs can be crucial if litigation arises where one party is wrongfully joined as a defendant. Otherwise proving you are not liable can be as or more expensive than the liability at issue. This is an important remedy because the right to recover attorney’s fees and costs does not exist by default, as many first time litigants are surprised to discovery.
Get Customized Advice from an Experienced Attorney
These are just a few of the issues that arise in the sale and purchase of business assets. The provisions that are useful for your particular transaction will vary with the circumstances. An experienced attorney can interview you and determine the provisions that will benefit your individual situation.
This blog post is for general information and education purposes only. It is not offered as legal advice or legal opinion. To the extent this message contains tax advice, the U.S. Treasury Department requires us to inform you that any advice in this article is not intended or written by our firm to be used, and cannot be used by any taxpayer, for the purpose of avoiding any penalties that may be imposed under the Internal Revenue Code. Advice from our firm relating to Federal tax matters may not be used in promoting, marketing or recommending any entity, investment plan or arrangement to any taxpayer.
