Negotiating the Terms of the Deal — Buying a Business Checklist Part 1

Negotiating the Terms of the Deal — Buying a Business Checklist Part 1

Negotiating the Terms of the Deal — Buying
an LLC or Small Business In New York – Part 1 Hi, I’m New York business attorney Craig
Delsack and this is part one of my checklist for negotiating the terms for the purchase
of any size business in New York. After you have found your target New York
business to acquire, you have to negotiate the terms of the transaction by creating a
term sheet. This is also known as a “LOI,” “letter of intent,” “MOU,” or a “memorandum
of understanding”. The term sheet, will set forth the parties’ mutual understanding
of the terms of the business purchase. Having a term sheet communicates to the seller
that you are serious about purchasing the business. It can prevent the seller from looking for
other purchasers of the business and the term sheet helps flesh out the major issues that
often arise in a business purchase and sale. Here is a list of typical terms and other
things to be addressed in a term sheet: 1. Names and Contact Information – Sounds
basic, but you need to have all the names and contact information for all parties involved
— buyer, seller, their corporate attorneys, any business brokers involved in the deal,
and any financial advisors and/or accountants. If any of the parties are not individuals,
you should have the full entity’s legal information. 2. Purchase Price and Other Consideration
– Will this be a cash deal, or a combination of cash and other real or personal property,
stock, or intellectual property? 3. Payment Terms. If a cash deal, will it
be paid in a lump sum, or paid in installments? * If in installments, will it be tied to profitability,
or other contingencies? * If seller financed, at what interest rate
and term? * If financed by a third party, is the deal
contingent on obtaining that financing? * Will there be a down-payment? 4. Collateral (or security) for the Purchase
Price. If the business is being sold with seller financing, the seller may want collateral
for your promise to pay back the loan. Perhaps the collateral will be the stock of the company,
some or all of the business property or business assets, or some other real or personal property. 5. Structure of the Deal. Assuming that the
business target is a corporation or limited liability company (LLC), you can structure
the purchase in one of two ways — either it will be a stock purchase or an asset purchase.
There are advantages to both, and both may have significant tax implications. You should
structure the transaction after obtaining advise from your financial advisor or accountant. * From a legal perspective a stock sale is
quite different from an asset sale. * In a stock sale transaction, you are buying
all of the stock of the company — and all of the company’s assets, liabilities, goodwill,
contracts, IP, real property stays with the company. You are buying the company entity
“lock, stock and barrel” – which means you may be buying the company’s headaches
as well (like lawsuits, and other contractual obligations). So when you buy the stock of
the company, you should conduct intensive due diligence.
* In an asset purchase, you are cherry-picking and buying the plum assets that you need for
your own business (or even a division of the seller’s business). In an asset sale, the
company’s liabilities and other headaches stay with the seller. This concludes part one of the checklist.
In part two we will look at Transfer Issues, Covenants and more. Please keep in mind, this is just a brief
guide and you should consult with a qualified business attorney before taking any action. For more details on this and other legal issues
please visit my website,

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