Business Enterprise

1. Introduction. Purchase or sale of a business can be very complex, and other things are important in different industries. Although it is not possible to discuss from a distance all the questions that should be taken into account, here are some key questions to keep in mind.

2. Privacy Policy. The seller must be sure that all potential buyers must sign a confidentiality agreement before providing proprietary information.

3. Disclosure of assets and liabilities.

a. should clearly be included in a sale of assets in a sale of assets, assets acquired.

i. A simple clause that the sale of all equipment, furniture and accessories include on-site will inevitably lead to disputes about what was not there and lead.

ii. The agreement should include the liabilities assumed by the buyer and there is no other liabilities have been received.

b. In a stock sale, the buyer should not solely on a review of the manufacturer’s books. It is not enough to generally to assets on the books. Instead, a list of assets and liabilities of the seller are created and in the agreement.

4. Evaluation. Valuation of a company is somewhat subjective and is still being negotiated. Evaluation methods include:

a. Assessment of the market. This is based on the sales prices of similar businesses in this area. Business Brokers often use this method, based on their experiences selling similar businesses in the region. (Business Brokers often ask, 10%, but like everything else is negotiable.)

b. Assessment of the asset. It takes into account such figures as the book value and liquidation value of the company. However, they are bare minimums in the evaluation of companies and are considered generally not used as the only option for a course.

c. Rating based on earnings. It considers historical financial data, including debt service payments, cash flows (past, present and projected) and revenues. Sometimes, the multipliers of income or profits are used, they vary from industry to industry. Also, it is sometimes calculated in a ROI approach.

5. Price adjustments based on performance. To limit their risks, their buyers want a clause in the contract performance of the purchase.

a. This clause states that when the transactions of the company there is an adjustment in the ticket used to pay the balance of the purchase price.

b. In return, the seller may also want a provision where there is an increase in the amount of the promissory note if the company to increase sales.

6. Types of transactions.

a. taxable sales. In taxable transactions, the seller must tax to the extent the consideration exceeds the tax value of assets or stock of the seller to pay. The buyer has an “enhanced” (purchase price) purchased basis in the assets or shares received.

i. Often, clients want a transaction structured as an acquisition of assets in order to avoid trying to pick up unknown liabilities. (This is not always successful.)

ii. Buyers also prefer to buy assets because they recognized not the seller of the history of low taxes (rather than a tax equal to the purchase price) will inherit.

iii. Business sellers often find that the transaction as a sale of shares from the sale of assets, in two levels of tax revenue to the seller: a tax on the transaction and a second fee if the manufacturer is a company dissolved after the sale led to the shareholders in the extent that their share is greater than its tax value of the stock.

(1) The sale of assets by an S corporation is generally not this double taxation, if the S corporation has been converted to a C-Corporation in the preceding 10 years.

b. Tax-free transactions. A “sale” of shares may be tax-free to the seller if the most important consideration is not money, but values in a buyer. (These transactions are generally referred to as “mergers” and there are many ways to that structure.)

i. In a transaction tax-free profits seller tax-free treatment, but the buyer suffers a loss, because the seller acquires (historically low) base.

7. Sales taxes. In the sale of assets (but not the sale of stock), sales tax is usually on the sale of movable property, unless the company is sold imposed by a service company (where the “occasional sale” can not apply exemption).

a. The sales tax is levied, even if the only benefit is supported by the purchaser of the bonds.

b. custom software are generally not as movable property.

c. In the absence of a provision of the contract to the contrary, the seller is responsible for all sales tax.

8. Allowance. The parties should agree on the distribution of the purchase price of various categories of the purchase agreement.

a. It is often difficult to reach an agreement if it is delayed – it is therefore to decide on the signing of the agreement.

b. In an asset sale if the buyer paid for all sales taxes, then the allowance made absolutely the most the buyer for tax purposes must make.

i. If the seller to pay for all or part of the sales tax, well, more tangible assets will be distributed to increase the amount of sales tax provider.

c. Generally, the buyer wants as much of the purchase price for the assets allocation of the fastest tax deductions – that is, those with the shortest payback periods.

i. For this reason, the buyer usually wants more emphasis on companies and accessories assign. Usually equipment and accessories can be depreciated over three, five, seven or 10.

ii. The buyer would typically assign to smaller values of intangible assets because they have a tax of long payback period of 15 years.

iii. Goodwill value can not be depreciated, so that a buyer wants to categorically affect the minimum amount of goodwill.

(1) will be transferred in the transfer of a trademark must be targeted Goodwill, or mark lost – if something needs to be assigned to a business or goodwill.

9. Pact / agreement not to compete.

a. The buyer will be almost always ensure that the seller to agree not to run or competing in a company.

enforce i. selling a business is one of the few opportunities in California is a non-compete.

ii. A specific geographical area in which the activity took place, must be specified.

iii. In addition, sole proprietors and partners are specifically the sale of the goodwill value of the company – and therefore something should be allocated to goodwill. (There is no restriction on sale of partners or LLC members.)

b. The payments are designed to compete in the federal government is not the seller is taxed as ordinary income, in order for providers and associated deductible by the buyer.

i. The allocation should be in reasonable form and amount.

ii. The buyer must amortize the payments over a period of 15 years (as well as other intangible assets). It is not as good as the allocation of equipment and accessories, but it is always better than a larger allocation of goodwill.

iii. In a share sale, the seller usually prefer less or no benefit to a non-compete (which is the tax on ordinary income) and some or all of the share sale of accompaniment (usually capital gains).

c. Often the buyer that the non-compete provisions must a separate contract, if an argument more adjustments in the sales contract, then the non-compete agreement still stands. The seller may, of course, good that the opposite.

10. Hold Backs.

a. Frequently, the buyer wants a certain amount of the filing, such changes (due to changes in inventory or accounts or due to unpaid creditors) or pro-rations (withheld taxes, utilities or cover rent) based on the closing date.

b. The vendor, of course, tried to minimize the amount of the hold-back.

11. By selling in bulk.

a. careful with sales of assets (but not the sale of shares), the buyer of the Bulk Sales Act. This law applies if:

i. “The main activity of the seller, the sale of inventory on hand, including those who sell what they want from a restaurant owner or production” and

ii. the sale is not in the ordinary course of business and

iii. Inventory more than half of the seller and the equipment is sold.

b. Bulk Sales Act essentially allows the buyer to pay the debts of the selling company – although, unless otherwise agreed, the buyer is entitled to recover these amounts from the seller.

c. For sales where the purchase price of $ 2,000,000 or less, the creditors must be paid from the escrow account.

d. The buyer can limit his liability by ensuring the seller is a list of creditors and by agreeing to pay the creditors on the list make sure (with an adjustment of the purchase price) or that the seller pays the debt limit .

12. Successor liability. If the buyer notifies the seller to continue the business, the buyer under a “successor liability” theory of liability lawsuits from customers of the Pre-Closing placed liable. It is a good reason, provide compensation and length of time in favor of the seller of the buyer, and check the insurance too.

13. Due Diligence.

a. In addition to writing all other due diligence that the buyer makes the buyer an accountant to the vendor’s books and determine if adjustments to the purchase price is required to rent. This point is crucial.

b. The seller wants to set a certain period, all necessary measures so that if no objections are filed within the prescribed time, the results showed satisfactory due diligence by the buyer.

c. If the company is a company in California, the buyers can see if it is in good standing (has paid his taxes in California), by clicking http://kepler.ss.ca.gov/list.html.

d. Buyers can search UCC want to see if there are liens against the company. On the Internet try + + California “UCC Search” to view a list of companies that offer to get this service. This is recommended.

e. If you are looking to see this process has been filed against the company wants to try, + California + Research Litigation “(this time make the plural) for a list of companies that offer this service. you can use a service such as [ http://www.lexis.com]. (Often, however, the buyer with the contract, under which the seller warrants that there is no trial, unless expressly stated -. And the seller must compensate the buyer satisfied when there is no violation This warranty)

f. buyer may want to check with the Better Business Bureau, if consumer complaints have been filed over the company.

g. If you believe that there may be environmental issues, whether the municipality where the company is “Environmental Health” unit – and call them to ask if there are problems with the place.

14. Assignment of leases and contracts.

a. If existing leases are important, the buyer must also be provisions to allow the closure depends on the consent of the owner of the lease with the current rents and lease terms.

b. Even if existing contracts are important, must be the buyer, to ensure that the contracts for sale or permit must, according to the closure of contracts subject to the other party agrees to the transfer.

15. Licenses and permits.

a. The seller will represent that it has all licenses and permits, firms operate, and that they are all transferred to the buyer.

b. The buyer should verify that it will be free for the issuing authority for such transfers – or if the issuing authority will require the buyer to benefit in any way.

16. Intellectual Property. In addition to many other protective measures (and indemnification provisions) when transferring intellectual property, the buyer will usually assure that the seller that the seller owns the intellectual property and the buyer agrees to indemnify any third party claims of infringement.

17. Training & Consulting Pre-Closing after closing by the seller.

a. For small shops, especially if the buyer need training to operate the business, the sales contract should specify how much (in hours or days) training pre-closing and post-consultation will be closed unless the owners and what (if any) is paid compensation to the owners for the. (For example, it could happen that the maximum number of hours per week for a few weeks.)

b. From the perspective of the seller, the agreement should specify that it is time for training or advice, and not for the activity.

c. It can also be for the seller, the days and hours during which the training and advice made available (eg from 9.00 bis 05.00 clock, MF) is limited, so do not try that the buyer, the sellers have important This unusual hours.

d. The seller is often attempted, the extent he / she must travel limit, with the new owners moved the business.

The above article is for general information only and should not be regarded as legal advice.

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