When buying a business, it’s important for buyers to consider the legal aspects involved to ensure a smooth transaction and avoid any potential problems down the road. It’s just as important that the sellers have everything in place from a legal perspective.
Due diligence (DD) is the process of thoroughly investigating and verifying all aspects of a business before making a purchase. This includes reviewing financial records, contracts, legal agreements like a commercial property lease, and other critical information to ensure that the buyer has a complete understanding of the business and any potential risks involved. The goal of due diligence is to minimize the risk of any unexpected surprises after the purchase has been made.
Here are some of the critical legal items that buyers should look for:
- Contracts: Buyers should review all contracts associated with the business, including employment contracts, supply contracts, lease agreements, and any other legal obligations. Make sure everything is set out in your legal contracts.
- Intellectual Property: It’s essential to ensure that the business’s trademarks, copyrights, and trade secrets are in order and transferable to the buyer. If you are the seller and you don’t have your business name trademarked, the seller may not be as interested as the brand isn’t protected against others that potentially have the same business name. It’s important to tick trademarking off the list as early as possible.
- Liabilities: Buyers should assess the business’s liabilities, including any lawsuits or debts. This will help them determine if the business is a good investment and what the potential risks may be.
- Financials: The financial DD is sometimes carried out by an accountant. Sometimes the seller may wish to do this themselves. This review should assess the financial health of the business and it may even be the reason a buyer pulls out of the acquisition, so make sure all your financials are in order.
Due diligence is a critical step in the process of buying a company and should not be overlooked. It’s always advisable to seek the help of a qualified professional, such as a lawyer, to ensure a successful and informed transaction.
In conclusion, buyers should thoroughly review the legal aspects of a business before making a purchase to ensure a smooth transaction and minimize the risk of any legal issues down the road.
If you would like help with your DD, book a free consultation with one of our lawyers here