The sale of a business is often an intricate process. A variety of legal issues usually arise when preparing to sell one’s business. So you must try to avoid this legal mistake when selling a business. Do this by carefully assessing and analyzing their possible angles. Any legal mistake may prove to be costly one by resulting in the termination of the process. This piece will give key pointers to sellers through an in-depth analysis of the essential legal concerns they should consider prior to putting their businesses up for sale.
Disregarding having a Non-Disclosure Agreement
This is an important protocol that entails business sellers ensuring all their buyers sign a Non-Disclosure Agreement, also known as a Confidential Agreement. Skipping this step puts the seller at an extreme disadvantage. The legally binding document guarantees that the buyer does not move about informing other people of the specifics they have obtained about your business.
Its importance is clearly depicted when, for instance, the proposed deal fails to go through, which occurs commonly. It prevents the buyer from disclosing the details of the deal to any other party. The revelation of critical details occur in the absence of the Confidential Agreement. This has detrimental effects on other future deals.
Failing to ensure that the Buyer Signs a Letter of Intent
A letter of intent is another legal document in business acquisition. It protects the seller’s rights. In addition, it seeks to safeguard their interest by clearly outlining and defining their expectations.
The document is often used as a means of transition from getting an initial indication of interest in purchasing to actually attaining a clear purchase agreement. The interest shown is sort of a bid as it establishes the initial, basic price and conditions of purchasing. It may be a binding or non-binding letter of intent which depends on the prevailing situation.
Buyers that do sign the letter of intent are considered serious customers. The document contains comprehensive conditions of the arrangement between the buyer and the seller. Under normal circumstances, it should have been previously negotiated.
Failing to Employ the Services of an Experienced Lawyer
Taking short cuts when selling a business should be highly discouraged and avoided. This is especially the case when addressing legal concerns that require the assistance and expertise of qualified attorneys. An experienced acquisition transaction lawyer has already gone through the motions involved in selling a business. They are privy to knowledge on the mistakes to be avoided and legal moves that must be taken.
Investing in a proper attorney will aid you in formulating stable deals with clients. There are a variety of risks sellers encounter when preparing the sale of their businesses. For instance, you may need protection if the potential buyer may seek to employ your key workers to a different business. This after deciding not to go on with the deal and it falls through. This ends up weakening your business. If you do not vet and certify your Confidential Agreement by lawyers, such loopholes do arise.
Failing to Properly Document the Transition Procedure
It is critical for the seller to sit down with the client and establish the type of transition they would like after making the purchase. Two variations exist. In one instance, the buyer offers training, support or guidance after the sale as the buyer continues to set up shop. In the other instance, there is an immediate and clean break from the enterprise by the seller upon finalizing the deal. This is usually the case when the buyer has his/her own business model in mind.
Exaggerating When Selling the Business
Sellers may employ brokers to mediate their deals and depict the business with as much flattery as possible. The flattery may exceed the real facts about the business. This essentially misinforms the buyer and misrepresents the seller. It often results in future legal concerns.
Failing to Pre-Qualify Potential Buyers.
Pre-qualify your potential purchasers early enough to protect your rights as the seller. Do not permit anyone into your privileged circle where you disclose financial concerns. This often has a disastrous outcome. Determine a select cohort of vetted seriously potential buyers. And allow access to the business’ financial details. This may also include information on strategic plans. The buyers normally do sign NDAs as additional legal security.
Thus, above are a few Legal Mistake To Avoid When Selling A Business. Generally sellers make these mistakes and end up regretting. Therefore, investing on the legal concerns is definitely well worth the effort and time.
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