Buying or Selling a Business General Considerations

            The buyer should evaluate its strengths and weaknesses.  For example, if the buyer feels it has problems with its management infrastructure, it probably will not be able to spare the management time and skills necessary to learn and take over the operations of the selling company.  If the buying company has a robust manufacturing operation but is weak in sales or marketing, it probably should buy only those with sales and marketing strength.

            The buyer must perform a complete financial investigation of the selling company. The tax and accounting results must be analyzed.  What is the existing and expected tax basis of the assets to be acquired?  Will either the buyer or the seller be subjected to recapture of depreciation or investment or other credits?  If so, will the selling company increase the sales price?

            The selling owners need to determine if the buyer will be financially able to fulfill its obligations under the purchase agreements.  This is particularly true if the buyer is assuming seller liabilities, there is seller financing of the sale, or the sellers are receiving equity in the buyer.   

            The buyer should always determine why the seller is selling.  If the seller is selling because its owners wish to retire, but the buyer needs their expertise until the transition is complete, then the buyer needs to think of structuring the deal to require an employment contract and a non-compete agreement for the sellers.

This informational memorandum from the law offices of Thomas D. Solomonis provided as a courtesy to our friends and clients to provide them with items of interest in the corporate acquisition area. It is not intended to be an exhaustive treatment of its subject matter but rather an overview of some pertinent elements of such subject.  It is not intended to be legal advice or a legal opinion and should not be relied on in making legal or business decisions.  If you have any questions, please call us.