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What to Know About the Purchase & Sale of Businesses 

On Behalf of | Dec 29, 2022 | Firm News

Purchasing and selling a business is not always an easy endeavor. Given the amount of money at stake, it is important to understand the potential legal, economic, and tax risks involved in selling or purchasing a business.

If you are considering selling your business or buying a business, an experienced business law attorney at the Law Offices of Jerry J Goldstein can guide you through the process. We provide exceptional legal representation to potential buyers and business owners who want to sell throughout the Coachella Valley, including Palm Desert, California, as well as communities in and around Imperial, Los Angeles, Orange, Riverside, San Bernardino, and San Diego counties, among others.

Types of Business Purchases & Sales

Business owners may choose to sell for a variety of reasons, from retirement or health concerns to simply being fed up with their business. There are two primary types of business purchases: asset purchases and stock purchases.

  • An asset purchase involves the buyer taking over the business, including, depending on the type of business, furniture, fixtures, equipment, and inventory without inheriting any debt or liability from the seller except as agreed.
  • A stock or other equity purchase involves purchasing all or most of the seller’s shares of stock, equity interests in a limited liability company, or partnership interests, which results in the purchaser acquiring the business whole, including all company assets but assuming all liabilities of the company except as agreed.

These two types of business purchases involve different processes and tax consequences. Each type has its benefits and drawbacks. Consider speaking with a business law attorney to discuss which type would be most appropriate in your particular situation.

Important Elements in a Purchase & Sale

The purchase and sale of a business involve the following important elements:

  • Financing. Generally, a business sale cannot be completed without some form of financing. In most cases, financing comes from seller financing or third-party financing, but it can also be a combination of the two.
  • Compliance issues. Individuals and entities should be aware of applicable regulations and laws to avoid compliance issues in the purchase or sale of the business. Sellers or buyers could potentially expose themselves to liability risks for the lack of compliance.
  • Documentation. Purchasing and selling a business involves a tremendous amount of paperwork and documentation. Generally, it is the buyer’s responsibility to prepare the necessary documents to complete the deal, but a careful review of, and comments/revisions to, those documents by an experienced business law attorney is essential to protect the seller.
  • Due diligence. Due diligence conducted on behalf of the buyer is one of the most critical – yet misunderstood – aspects of acquiring and selling a business. The due diligence process is necessary to identify areas of legal or regulatory risk that could affect the deal.

If you are considering buying or selling a business whether or not you know what the process entails and what to expect along the way, contact the Law Offices of Jerry J Goldstein to learn everything you need to know about the purchase and sale of businesses.

The Process of a Small Business Sale

The process of purchasing or selling a small business is comprised of the following four stages:

  • Preparation. The first step in the process is preparation. It plays a pivotal role in the success of the sale and includes the preparation of sales documents as well as the assessment of liability risks.
  • Valuation. As the name implies, business valuation is determining the economic value of a business to know how much money the seller can get from selling the company.
  • Audit. The sale of a business is never completed without thorough and in-depth checks, including the due diligence process. The goal of performing these checks is to assess the legal, tax, and economic risks of the purchase.
  • Closing. Before the sale of a small business is closed, the seller and the buyer will usually participate in contract negotiations. The final step is signing the purchase and sale agreement and the many additional documents generally required for the consummation of the transaction.

Regardless of whether you are the seller or the buyer, seek the assistance of a business law attorney who will take care of your legal matters and handle the paperwork for you.

Seek Trusted Legal Guidance

The business law attorney at the Law Offices of Jerry J Goldstein assists clients with all matters involved in the purchase and sale of businesses. Our unparalleled legal knowledge may help you regardless of what side of the transaction you are on. Please note that in providing services outside of our immediate area we generally don’t bill for travel time from our offices to meet at the business location or home of our clients.