Buying A Business

When a person buys a business, they typically buy only the assets of that business. That includes stock, machinery and goodwill. They are not required to purchase that business’ liabilities.

Of course, in some purchase agreements, a purchaser agrees to buys assets at a price that reflects a reduction for pre-existing liabilities.

For a transfer of business to be complete, the pre-existing employment arrangements between the old employer and employees need to be terminated. However, the purchaser must employ at least one employee within three months for the transfer to become completed. If the buyer wants to transfer employees, all employees need to make new agreements with the purchaser.

Also, purchasing the assets of a business can sometimes mean having to get the approval of third parties. For example, a contract to exclusively distribute a product could require the consent of the other contracting party before assignment to the buyer.

Regarding necessary due diligence, purchasing a business is not necessarily easier than buying a company.

If you buy a company, you purchase the shares in that company. As a legal person, the company itself remains the same. The buyer acquires everything through the shares including assets, liabilities and tax obligations. Significantly, you also purchase the risk of litigation against the company.

You need to make sure all due diligence is done and done well. You must review all contracts to identify any change of control clauses. These terms allow parties to decide if they would like to continue the pre-existing business arrangement in the event of a change in ownership. You will need to know what these clauses mean for you. New employment contracts are not necessary, and the existing employee structure can remain the same

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Buying A Business

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