Buying a business? 5 Reasons Why You Need Lawyer
Updated: Mar 20
Buying an existing business is an exciting undertaking. There are many advantages to buying an ongoing business over trying to start one from the ground up – from an immediate cash flow to having a customer base to grow on. But, there are also many drawbacks as well. That’s why it’s important for you to have an experienced business lawyer who can guide you through the process.
Here are five things a business lawyer can help you with:
#1 – AVOIDING TRANSFEREE LIABILITY
Transferee liability situations can arise when the person/entity that you’re buying the business from transfers assets to you (the ‘transferee’) while still having debt that is or may become a lien against them. Being responsible for the seller’s debts is obviously something you’d want to avoid. This becomes particularly important if the seller owes taxes to the IRS, or more likely, to the State of New York. Unless proper steps are taken, the buyer of the business could become liable for the seller’s back sales tax obligation. One of the most important things a buyer’s attorney does when representing the buyer of a business is to protect his client from becoming liable for the seller’s back sales tax obligations. Once a Purchase and Sale Agreement is signed, it is incumbent on the buyer’s attorney to send the proper notices to the New York Department of Sales Taxation and Finance to obtain a release of liability for the Buyer.
#2 – QUANTIFYING REPRESENTATIONS AND WARRANTIES
When buying a business, you’re relying on certain representations that the seller is making about his or her business – whether it is sales, profits, contracts with customers employees, vendors, or the condition of equipment. A business law attorney can help to protect your interests, if these and many other representations are not true or inaccurate.
#3 – DRAFTING AN ENFORCEABLE COVENANT NOT TO COMPETE
Nobody wants to buy a business only to have the seller go back into competition with him or her. A buyer’s protection from this is to have the seller sign an agreement not to compete with the business he or she is selling for an agreed upon time and in an agreed upon area. Sounds simple, but as a general rule, the courts are reluctant to enforce these agreements unless they meet specific parameters. This is a tricky, but an important part of every business transaction. Your attorney can draft an enforceable non-compete agreement.
#4 – SELECTING THE PROPER ENTITY FOR YOUR NEW BUSINESS
What type of business entity should you choose for operating your business? Should you form an S-Corporation, C-Corporation, Limited Liability Company, partnership, or sole proprietorship? Each of these forms of ownership has different tax and asset protection advantages and disadvantages. It is very common where the business includes an operating company and real estate for there being an LLC to own the real estate, and a corporation to run the business. Choosing the right type of entity to own your business before you close on your purchase is very important. A wrong choice can cost you money down the road. That is why it’s important to work with an experienced business law attorney who can properly guide you into choosing the right way to own your new business
#5 – PROVIDING GOOD AND UNENCUMBERED TITLE TO THE ASSETS YOU ARE BUYING
Banks or suppliers may have placed liens against the assets you are buying. It is important that these liens are cleared before you pay your seller any money. It is the buyer’s attorney’s responsibility to make sure there are no liens against the assets you are buying so that you end up with good title to these assets.
For these and many other reasons, if you are buying an existing business it is important that you have an experienced business law attorney guiding you through the process. Ronald J. Axelrod, a business law attorney in Rochester, NY, has the experience you need to offer the guidance you deserve. Call our office at (585) 203-1020 to schedule a free office consultation.