The Importance Of Legal Review When Selling Your Business
Selling your business is a complicated business. Long gone are the days of handshake deals where you’d just turn over your assets for a lump of cash—if those days ever really existed (we suspect business sales have always been a complicated affair).
You’re eventually going to need a whole team on your side to get what your business is worth—and to avoid any trouble down the line: A business broker, your accountant,—and of course, your legal representation.
Today, we’re going to review the importance of legal review. More specifically, we’re going to look at how your lawyer will help guide you through key points of the business sale process and how business brokers and lawyers work together.
Let’s dive in:
Start with your best foot forward
Whether you’re trying to sell a manufacturing business in Vancouver or a tech business in Victoria, one thing is for certain: The sale is going to be more complicated than you expect.
We recommend you consult with a lawyer shortly after you’ve decided to sell your business and have commenced the process with your business broker. By bringing your lawyer into the fold early, they can start working with your business broker immediately to ensure that the transaction moves forward as smoothly as possible. (Note: A good business broker will have a list of lawyers they have worked with on past transactions. Just ask for a referral if your corporate lawyer does not specialise in business resale transactions.)
As we’re about to discuss, your lawyer has a vital role to play in almost every step of the business sale process, from helping you determine how the deal should be structured to ensuring that you get the compensation you’re entitled to.
As discussed, your usual corporate lawyer may not have the expertise necessary to help you in legal affairs when selling your business. Talk to them—they’ll let you know if business sales are a part of their core competencies.
Structuring the deal
Broadly speaking, there are two ways of structuring a business deal: Asset sale and share sale. Both can have significant legal implications.
In an asset sale, you’ll need to deal with a number of legal hurdles. You may retain certain liabilities, and you may be responsible for terminating employees the new owner doesn’t want to retain. All in all, asset sales may be more or less complex from a legal standpoint—though there are a number of advantages to asset sales.
Conversely, share sales may also be more or less complex. Working in conjunction with your business broker, your lawyer will be able to weigh the pros and cons of each option. For example, they may be able to determine whether or not the disadvantages of potential legal liability are worth the advantages of being able to retain certain assets.
Preparing for the sale
Before you even begin to look for prospective buyers, you’ll want to ensure that all of the essentials are in order: Your balance sheet is cleaned up, documents that prospective buyers will ask for in due diligence are prepared, and that all contracts with suppliers, landlords, and other stakeholders are clearly written out and up to date.
Again here, your lawyer and business broker can work in tandem. Your broker will get to know your business inside and out, so they can discuss contractual obligations with your lawyer. They’ll also be able to bring up liabilities and other legal concerns that may arise during due diligence, so you’ll be prepared well in advance of signing a letter of intent.
Drafting the agreement
Your lawyer is instrumental in drafting the final purchase agreement. (Note: In most transactions, the Buyer’s lawyer will prepare the first draft.) Purchase agreements are complex—aside from the purchase price, and what’s being sold, they may include:
Warranties, guarantees, and representations of fact about the business being sold (and its assets)
Obtaining releases from various stakeholders (shareholders, lenders, landlords, etc.)
Ensuring that purchase shares are properly transferred
And much more
Without your lawyer, a business sale is impossible—and without your business broker, your lawyer will have a much harder time drafting an agreement. Your business broker knows everything about your inventory, assets, liabilities, and more—they’re an invaluable partner.
Other considerations
As we mentioned at the top, business sales are astonishingly complex legal transactions. We’ve only touched the tip of the iceberg here. Your lawyer can also help:
Ensure that any employee terminations, if applicable, are legal
Ensure that the seller is not liable for post-sale employee liabilities
Guarantee certain agreements, like vendor take-back (VTB) and earn-outs
Handle the almost mythical deluge of paperwork that will come your way
Your lawyer is an integral part of the team that will help you sell your business. Your business broker is, too. Looking for a business broker in the Vancouver area? Call us today.