Whether it’s a franchise, self-standing business or part of an existing business, your legal diligence, along with financial, marketing and other analysis, before your purchase could make or break your business investment. Some of the important legal considerations are:
- Nature of the Transaction. Buying assets, ownership (stock/membership), a franchise assignment or initiating a new business each have different tax and legal consequences.
- Status of the Seller. Buying from an individual (sole proprietorship), partnership, legal entity (corporation or LLC) or some other organization requires a different legal analysis.
- Acquiring Entity. How you acquire the business should provide limited liability yet allow the necessary flexibility to operate the business for maximum return.
- Financing. From self to seller to third party financing, there is a wide range of financing mechanisms that can impact the operation and success of your business.
- Seller Assistance. Do you want or need seller’s future assistance or cooperation to grow or maintain the business, and if so, how do you ensure it?
- Liabilities. The number, amount and type of the seller’s liabilities can impact your business, as can its prior credit history and relationships.
- Liens. Tax, security, or other liens on acquired assets can have a substantial impact on your business.
- Regulations, Licenses and Permits. Can your business comply with all license, franchise, regulatory, permit or other requirements?
- Insurance. Can or must you obtain appropriate insurance to operate your business? Was the seller sufficiently insured and will it maintain sufficient insurance to protect your business?
- Tax Consequences. Almost all transactions have tax consequences that should be determined, analyzed and addressed in your business plan.
- Seller Indemnity. How will and can the seller indemnify, defend and protect your business from its mistakes?
- Noncompetition. Can you prevent the seller from competing?
- Long Term Liabilities. Leases, mortgages and equipment purchases that create long term liabilities and require personal guaranties or security should be entered into cautiously.
Brooks, Tarulis & Tibble, LLC assists clients in starting, purchasing, selling and investing in businesses and franchises. If we can assist you in this regard, please contact us.