In the work that we do with commercial businesses here at Urban Thier & Federer, we regularly work with clients who seek to buy a business in New York. Obviously buying a business in New York, as in any other state, is not like buying a new or used car. Such a purchase is a complex multi-step affair that will require the services of a lawyer, and we are available to help you in the process.
So how do you buy a business in New York?
The first step in buying a business is finding a business that you want to buy. This can be done through the classified section of most metropolitan newspapers or your own personal network. Next you will want to negotiate the terms of the purchase with the owner and conduct due diligence on the business you are interested in buying. Then you must prepare the business purchase agreement and finally close the sale.
That answer is, of course, very simplified. Whatever legal expert you hire for your business purchase will help in facilitating the entire process. But, in order to keep you aware of what is happening in each of these steps, this article will provide a brief outline of what these steps include.
How do you find a business to buy?
Starting a new business involves dealing with a large quantity of unknowns. You may fail in your venture entirely or perhaps only find small success. Buying a business instead of starting one allows you to acquire a known value and build on it. With the business, you buy that business’ customer base and the reputation it has developed.
Classified pages in metropolitan newspapers and on newspaper websites often contain listings for businesses that are for sale. You may also be able to use your personal network to find businesses that are for sale. Social media sites such as LinkedIn or Facebook are excellent tools for tapping into your personal network to find prospective businesses.
Once you have acquired a potential target business, we, as your lawyers, will help you to evaluate the business so that you do not overpay for it. There are multiple ways to make this initial value judgment. We can help you find out the value of the business’ assets or calculate the business’ cash flow and the business’ actual profits or losses on a yearly basis. We can also help you do some research into the prices that other similar businesses have sold for in order to get some idea of what you should be willing to pay.
What do I need to negotiate as part of the sale?
Once you have gathered enough information to make an estimation about the value of the business it is time to begin negotiating the price for which you intend to buy it. Remember that in this phase the more you know about the business you are trying to buy the better off your position as a negotiator will be.
There are multiple methods you might engage to negotiate with the seller at this stage of the sale, and as your lawyers we will be happy to assist you with the negotiations.
At this stage in the buying process, it is common to prepare a term sheet for the sale. This term sheet is an outline of the sale that includes the parties of the transaction, the structure of the transaction (whether you are buying some or all of the stock/shares of the company, all of the company’s assets or just certain ones), the price and what exactly is being purchased, how the price is to be paid (all at once or in installments), binding and non-binding terms of the agreement, and any confidentiality obligations.
We will help you prepare the term sheet and make certain that all elements of it are agreeable to you prior to the end of negotiations.
What is “Due Diligence”?
Due diligence is the process by which you thoroughly investigate the business you are interested in purchasing. The Due Diligence can be performed before the Purchase Agreement is signed and afterwards. Often, it is done after signing of the Purchase Agreement. The results of this investigation could possibly change the price you have discussed with the seller during the time in which you were setting up the term sheet.
If you are interesting in purchasing a business in New York, we will help you verify that the business is operating legally and has been properly formed in accordance with all relevant governmental agencies. The business should also have all necessary licenses and permits. We will examine the tax returns and financial statements of the company you are interested in buying and review any contracts to which your prospective company is a party, including leases.
There are potential pitfalls associated with buying a business that can be hidden in the details of contracts. While we are checking into the business’ contracts, we will also be checking to make sure the business is not violating any zoning laws, is being sued, or has any judgments against it. This is also the time to check into any environmental reports to find out if the business has contaminated the land on which it is operating.
We as your lawyers will also coordinate the work of other experts, such as accountants or engineers. After you are satisfied that the business is a safe purchase and the term sheet has been prepared and agreed to, it is time to progress into preparing the purchase agreement.
What is a purchase agreement?
There are many documents that are needed when a business is being transferred from one owner to another. There are purchase agreements of multiple types such as stock purchase agreements, asset purchase agreements, assignment and assumption agreements, deeds, consents, and others. As your New York business attorney, we will draft these documents for you.
The purchase agreement is by far the most important of these documents related to the sale. This agreement, as the name suggests, details how you are going to purchase the business. There are generally two ways you might go about making this purchase. You might buy enough stock in the company to become the owner and thus gain control of all of the business’ assets. The agreement to do this is referred to as a stock purchase agreement. Alternatively, you might only be agreeing to purchase some of the assets of the business. In this case, the agreement you would be signing is called an asset purchase agreement.
These transactions are usually very complex, so you want to be certain that all documents are drafted that are necessary to protect you through all the terms and conditions of the sale.
How do I close on the sale of a business?
With the purchase agreement signed and executed, the Due Diligence successfully performed, and any re-negotiations concluded, it is time to move on to closing the sale.
On the date of closing you, the seller, and all the attorneys will meet to sign any remaining agreements and make any payments that are due as part of the sale of the business. A few other people may also be in attendance depending upon the circumstances of the purchase agreement and the business’ operation. For instance, if the business is leasing a property, the landlord may attend the closing to make sure that the lease’s details are properly transferred to the new owner. Additionally, if you have a lender helping you to make the purchase of the business, they may attend the closing as well.
Once the paperwork is all signed and the appropriate financial transactions take place, the ownership of the purchased items, stock or assets has been transferred.
As you can see, the purchase of a business in New York is a very complex transaction that will likely require a competent business attorney at multiple stages. For this reason, we at Urban Thier & Federer encourage you to contact us if you are interested in purchasing a business in New York.
Interested in Buying a Business in Florida? Check out this blog