Owning your own business is a dream for many, and that is understandable given that the rewards a successful business can bring are significant. One way to shortcut the process is to buy an existing business, but the process involves many pitfalls, and as some of them are legal, having the advice and support of a commercial lawyer throughout the purchase process is essential.
Not every aspect of buying a business will be a legal one, with matters such as business finances, new branding, media announcements of the change of ownership, and many others, not all necessarily requiring the help of a commercial lawyer. Nevertheless, having a commercial lawyer being given an overview of everything will ensure that nothing happens that may come back to cause you a major legal headache.
Whilst every sale and every purchase of any existing business will have their own peculiarities, at the core of most of them will be four essential legal steps. These four legal steps need to be navigated correctly to ensure that the purchase of your new business can proceed without any major hurdles or more to the point that it does not fall through altogether. We have covered each of them in some detail: Review of the Contract, Amendments, Review of the Commercial Loan Agreement, Exchange and Settlement of the Contracts.
Step 1: Review Of The Contract
Following the successful negotiation of the terms of the sale and purchase of the business, any agreements and the details of the sale need to be produced in the form of a contract.
This is a key part of the process and is where mistakes, misunderstandings or miscommunication can cause issues with respect to the transaction. It is vital that you, and your commercial lawyer, review the contract line by line to ensure that what it contains, is what has already been agreed.
Step 2: Amendments To The Contract
Having reviewed the contract, should you find any irregularities or errors, then you should request that these are corrected. In addition, you are still within your rights to make requests for further amendments to the terms of the contract. This could relate to matters such as waivers, liabilities, responsibilities, and time frames.
Step 3: Review Of Lease Documentation
Most businesses do not own the properties they operate from and therefore it is likely that you will be leasing the property that the business you are buying is currently using. As part of the purchase process, you need to establish whether the lease that is currently in place will continue with you as the new owner, or whether a completely new lease will be required.
Whichever it is you need to review that lease with regards to the length of the lease, the associated costs such as rent, responsibilities for maintenance of the property, and what, if any, subleasing restrictions might be in place.
Step 4: Exchange And Settlement Of Contracts
If steps 1 to 3 are completed satisfactorily, and everything is watertight legally as advised by your commercial lawyer, the final stage is to agree and sign the contract to purchase your new business. This should be done with your commercial lawyer present so that if there are any final queries they can be answered.
Once the contracts are signed it may take a few weeks for all the formalities to be processed, and of course, there is the matter of you arranging for the payment of the agreed purchase price to the other party. Transfer of ownership of assets such as stock and machinery, plus transferring rights relating to trademarks, brands and intellectual property needs to be processed too.