Craig's Corner - Wealth Planning Insights

Sunday, July 16, 2017

Key Issues To Look Out For With Asset Purchase Agreements

Whether you are the buyer or seller in a business purchase transaction, you will want to make sure that certain key issues are addressed in an asset purchase agreement, before you sign it. Of course, it is always a good idea to talk with a lawyer who has experience in the purchase and sale of a business before you head down this road. In the meantime, here are some key things to look out for.

  1. Purchase Price. Be specific! Does the price include debts that the seller wishes to transfer? Make sure those are included.
  2. Payment Terms. Is this a straight cash deal? Or will there be equity involved? Will there be a one-time payment? Or will payments be structured over time? Will stock be issued as part of the transaction? What regulations may govern those terms?
  3. Closing Price Adjustments. Sometimes, the final payment will be adjusted at the time the dal closes, based on a number of financial factors, including the present value of assets, working capital and balance sheet adjustments.
  4. Earn Out. Sellers may want to be paid a certain amount after closing the deal, based on the business’ performance after closing. These terms should be clearly stated to avoid post-deal litigation.
  5. Taxation. It is important to determine in advance how the transaction will be characterized for tax purposes. Will the transaction be tax-deferred? What portion of the purchase price may be treated as capital gains?
  6. Hold-Backs. Purchasers may want to have a certain amount of the purchase price held in escrow for a certain time period so they can determine whether any information has been withheld or misstated. Again, these types of terms should be explicitly laid out before the transaction moves forward, to avoid litigation later on. 
  7. Indemnification. Nearly every contract in existence has some form of indemnification provisions in place. Depending on the type of transaction, each party may want to be protected from post-closing breaches. Be sure to carefully consider time and money limitations on indemnification terms.
  8. Non-Compete Agreements. A purchaser may wish to impose a non-compete term in the agreement to help preserve the value of the business. These types of terms must be carefully crafted to ensure they will be legally enforceable if challenged.
  9. Employee Matters. Will employees remain employed by the purchaser once the deal goes through? Consideration must be given to who will be responsible for severance payouts and compliance with the WARN Act, if applicable.
  10. Third-Party Approvals. Some commercial contracts require third-party approval prior to assignment. Ensure the purchase agreement provides time and contingencies for these types of arrangements.

Of course, there are many other issues that must be addressed in any business purchase. An experienced business attorney can be invaluable in these situations. Talk to Nevada business planning attorney S. Craig Stone II today by calling (877) 800-3424. He will help you determine what terms are best for you and your company. 

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S. Craig Stone II of Stone Law Offices, Ltd. serves clients throughout Clark County, Southern NV, Las Vegas, Henderson, Boulder City, North Las Vegas, Summerlin, Carson City, Reno, Washoe County, and Nye County. Also serving clients with asset protection nationwide.

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