Top Reasons You Need an Attorney When Buying a Business

Purchasing a business is an exciting undertaking that comes with the promise of growth, independence, and financial rewards. However, it’s important to note that it also comes with complex legal and financial processes. If these are not handled properly, it could lead to significant risks and setbacks.

Whether you are purchasing a small mom-and-pop shop or acquiring a larger company, it’s critical to have an experienced attorney on your side. The attorneys at Colorado Law Group can help ensure that the transaction is successful and protect your long-term interests.

Below, we’ll explore the top 5 reasons you need an attorney when buying a business:

Proper Structuring of Deal

One of the most critical aspects of purchasing a business is determining the proper structure for the transaction. This will impact taxes, liability, and future operations. A business attorney can guide you through these considerations to ensure the deal structure aligns with your financial, tax, and legal goals.

Asset vs. Stock Purchase: in an asset purchase, specific assets are acquired without the liabilities. In a stock purchase, you take ownership of the entire company including debts and obligations. An attorney can help you weigh the pros and cons of each type depending on your specific situation.
Tax Implications: The deal structure will also impact your tax obligations. An attorney, along with a tax professional, can help you understand the potential tax consequences and structure the deal to minimize tax liability and maximize your tax basis.
Organizational Structure: How you structure your ownership of the required business will affect your future tax consequences in the operating of the business.

Thorough Due Diligence

When buying a business, conducting due diligence is one of the most important steps. It involves verification that the business is as represented by the seller, including intellectual property rights, Real Estate rights, legal obligations, and more. An attorney plays a crucial role in this process by:

Reviewing financial statements: An accountant can analyse the numbers, but an attorney will ensure that the seller represents there are no hidden risks, such as unreported debts, unpaid taxes, or outstanding lawsuits.
Evaluating legal risks: An attorney can review the legal history of the company including contracts, leases, and employee agreements, to ensure that there are no significant legal liabilities that could impact your ownership.
Ensuring compliance: An attorney can insure the seller verifies that the business is in compliance with state and federal laws, local ordinances, and industry regulations.

If you do not conduct proper due diligence, you may unknowingly purchase a business that is financially unstable or legally compromised.

Negotiating Terms of the Purchase Agreement

The purchase agreement is legally binding. It outlines the terms and conditions of the sale, including the purchase price, payment terms, and transfer of assets and liabilities.

It is essential to have an attorney draft, review, or negotiate the purchase agreement because they can:

Protect your interests: An experienced attorney will ensure that the contract terms are fair and protect your interests. They can address issues such as indemnification clauses, which help protect you from possible legal claims following the sale and non-compete agreements that prevent the seller from starting a competing business in the future.
Clarify ambiguities: An attorney can ensure that all terms are clearly defined to prevent misunderstandings or disputes in the future.
Adjust terms in your favor: If certain aspects of the deal are unfavorable, an attorney can negotiate to improve the terms, including adjusting the payment schedule, limiting liabilities, or securing additional warranties from the seller.

If you do not have a thorough legal review, you may sign an agreement that exposes you to unnecessary risks or financial burdens.

Handling Regulatory Requirements and Licenses

Most businesses require various regulations, licenses, and permits, especially if they operate in a highly regulated industry. When buying a business, it is important to make sure that all necessary licenses are transferred and that the business is in compliance with applicable regulations. An attorney can help by:

Ensuring license transfers: depending on the nature of the business, licenses/permits may need to be transferred or reissued. An attorney can handle this process, ensuring the transition is smooth and there are no operational delays.
Navigating industry regulations: different industries have unique regulatory requirements. An attorney familiar with your business’s sector can ensure that the purchase doesn’t violate regulatory guidelines/requirements, helping you avoid fines or operational shutdowns.
Addressing environmental/zoning laws: In some cases, there are zoning laws/environmental regulations to consider. An attorney will ensure compliance with these laws before finalizing the transaction.
Assessing Intellectual Property: An attorney can ensure you knew what, if any, intellectual property you are acquiring.

If you ignore these regulatory issues, it could lead to costly penalties, license revocations, or even a shutdown of your newly acquired business.

Minimizing Risk and Liability

The primary reason to hire an attorney when buying a business is to minimize risk. Even a well-established business may have hidden dangers, from unresolved lawsuits to undisclosed debts. An attorney can help identify these risks and mitigate them before you finalize the purchase, including:

Reviewing employment contracts: An attorney will evaluate existing employment contracts, ensuring you are not inheriting unfavorable terms that may lead to future disputes with employees.
Addressing liabilities: An attorney will ensure that liabilities are properly disclosed and appropriately handled during the sale.
Limiting exposure: An attorney will reduce your exposure to risks after the sale, whether through negotiating liability limits or indemnification clauses.
Tax Consequences: An Attorney can assist you in taking advantage of tax benefits in acquiring and operating the business.

When buying a business, an attorney can help safeguard your investment and give you peace of mind as you embark on your new business venture.

Secure Your Business Future: Contact Colorado Law Group Today

In conclusion, purchasing a business is a complex transaction with significant financial and legal implications. An experienced attorney can help ensure that the deal is structured properly, due diligence is thorough, and your interests are protected every step of the way. If you are considering purchasing a business, contact Colorado Law Group to partner with a legal expert.