Business Purchase Options
The sale/ purchase of a business is a complicated venture, and requires both business acumen and in-depth knowledge of and familiarity with the law of business associations. Among the many decisions you must make is how to structure the transaction itself, which will dictate legal issues and, furthermore, affect the tax aspects, documentation requirements and operations of your business. If the business is a sole proprietorship or partnership, the transaction will automatically be structured as an asset purchase. If, however, the business is structured in another form, such as a corporation or a limited liability company (LLC), you will be required to determine the nature of the transaction on your own: asset purchase, stock purchase, merger or consolidation. You should note that most sales/ purchases of small businesses are structured as asset acquisitions or stock purchases.
An asset acquisition/ asset purchase consists of a purchaser buying all or specified assets (and some, all or no liabilities) of the selling entity. If you are the buyer, you may prefer this structure because you can choose which assets and liabilities to assume; the asset purchase will reduce, but not entirely eliminate, your exposure to possible unknown or contingent liabilities. However, the asset purchase form is not always available, such as when there are certain sophisticated business-related licenses, trademarks, leases or contracts that are not assignable or that are difficult to assign. Also, when assets are acquired, there are various complicated corporate formalities to which you must adhere to effectuate (separately) the transfer of title to each asset and each liability you wish to sell/ purchase. The sheer amount of paperwork involved in the transaction increases the potential for error and, thus, the imposition of liability. If you are the seller, you should be especially careful to ensure that your shareholders do not lose their limited liability as to the debts/ obligations of the business.
A stock purchase is the likely alternative to an asset acquisition. As such, the purchaser can indirectly acquire control of another company by buying all of its stock. The legal and corporate status of the entity remains the same during and after the transaction. If you are the seller, you will likely prefer a stock purchase to an asset acquisition, because the former better guarantees the transfer of assets and corporate liabilities. A stock purchase is also easier to accomplish due to the fact that numerous small conveyances (and their corresponding paperwork) need not be effected. If you are the buyer, there are ways you can structure a stock purchase so as to maximize your own protection. Among other things, you can establish indemnification agreements, holdback arrangements (i.e. delay your payment of the full purchase price, hold funds in escrow, etc.) so that you are covered if you are later made to pay more of the seller’s obligations.
The sale/ purchase of a business is complex by its nature, and it would serve you well to engage a Florida licensed attorney experienced in the practice of business/ corporate law to assist you through the process. Along with advising you on how you should structure your transaction, your attorney can help you through the following crucial steps:
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If you would like more information about this topic, contact Lawrence Tolchinsky to find out how he can help you. You can contact him by phone at 954-458-8655 or by e-mail through this web site to schedule an appointment and learn more about title insurance. He offers a free initial consultation.
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