We often have inquiries from clients considering the purchase of a business. An experienced attorney should be consulted when commencing this process. Initially, the seller’s attorney will deliver the contract to the buyer’s attorney for negotiation. Should the business being sold be a franchise, the final contract should be conditioned on approval of the franchisor to the buyer conducting business under the franchise name.
After consulting an accountant to confirm that the business to be purchased is financially viable for the buyer’s future income needs, the financial terms of the deal are to be structured. There may be a broker who has negotiated the initial terms, which may be modified during the contract negotiation process. Usually the payments required of the buyer are the delivery of the downpayment to the seller’s attorney to be held in escrow until closing and another payment at closing. The payment at closing may be the last payment to be made or the buyer may sign a promissory note for subsequent payments to be made after the purchase.
Particular protections need to be in place on behalf of the buyer. A lien search should be obtained prior to closing, so that the seller obtains lien releases for equipment and tax matters that may have an effect on the buyer. For example, if a freezer is to be conveyed and the seller has a business loan on such equipment, a UCC Financing Statement is likely to be filed evidencing the loan. If the loan is not paid at the closing and the UCC remains, the buyer is acquiring the freezer subject to the seller’s loan and will not own it outright.