Buying an Existing Business: A How To Guide
Buying an existing business involves several steps that may vary depending on the approach you choose to take. Your business lawyer can help you navigate the many decisions you’ll have to make throughout the buying process.
First, you must choose how to structure the transaction.
Do you want to pursue a merger between your company and another
Would you like to acquire part or full ownership through a stock purchase
Do you want purchase both the assets and liabilities of an existing company, or
Or do you want to just purchase another company's assets?
This decision will affect many aspects of the transaction, including tax and liability obligations. Your attorney can work with your accountant and other tax professionals to advise you on your best path forward.
Once you choose the type of transaction you want to pursue, you must determine the purchase price that you will propose to the seller. Here, you’ll likely have to involve the expertise of business appraisers, investment bankers, accountants, and other valuation specialists at the direction of your lawyer. Based on your bargaining power, liquidity, and risk tolerance, you can offer the seller cash, equity, debt, assets, or a combination of these as a compensation package.
Once you have acquired the necessary information, your lawyer will draft a letter of intent (LOI) to present to the seller for both sides to sign. The LOI should cover:
The purchase price and details of the transaction’s structure,
The necessary due diligence that will be required to move the transaction forward,
Any other important terms as discussed by the parties.
Letters of intent cover the tentative terms on which both parties anticipate agreement. LOIs generally aren’t legally binding obligations, so the terms of the final purchase agreement can change over the course of negotiations. However, some LOIs may be written like contracts, with binding terms. Others can be a combination of binding and non-binding conditions. The attorneys at The Kyle Law Firm will guide you through this to help avoid potential issues, give us a call at: 225-293-8400.