Purchase and Sale of Business: A Synopsis

Introduction:

There are various legal aspects to consider when engaging in the purchase and sale of a business transaction. The following points are not exhaustive of the aspects to consider but it provides an overview to ensure a legally compliant transaction:

1. Due Diligence: There are various kinds of due diligence to assess the business health including but not limited to financial and legal due diligence. Prior to the purchase of a business, the buyer should conduct thorough due diligence to assess the financial, operational, and legal aspects of the business.

2. Asset vs. Share Purchase: The parties will need to determine whether to structure the transaction as asset purchase of purchase of shares. This decision has significant legal and tax implications for both the buyer and the seller.

3. Legal Structure: It is best to have a legal structure that will maximize tax efficiency. The buyer may choose to retain the existing structure or set up a new entity and transfer ownership to the new entity.

4. Purchase Agreement: This is the contract that outlines the terms and conditions of the purchase and sale transaction. The purchase agreement includes representations, warranties and any conditions precedent to the sale of the business.

5. Contracts and Liabilities: Due diligence will allow for assessment of existing contracts, obligations, and liabilities associated with the business. These existing obligations and liabilities have to be factored while negotiating the purchase and sale transaction.

6. Employee Matters: Depending on the size of the business and whether the business has employees, there is a need to consider the effect of the sale transaction on the employment contracts and on going obligations under the law.

7. Intellectual Property: Intellectual property assets including trademarks, copyrights and patents should be properly transferred and registered in favour of the buyer. Where there are licensing agreements or restrictions, these should be addressed.

8. Escrow: Where there is a potential for post-closing matters, an escrow arrangement should be considered to address such issues. This is ensure that parties are financially covered to minimize potential liabilities.

9. Closing and Post-Closing Obligations: Clearly define the closing process, including the date, location, and conditions for completing the transaction. Address any post-closing obligations, such as transitional support or non-compete agreements.

10. Dispute Resolution Mechanisms: To avoid costly litigation, mechanisms, for resolving disputes after the sale transaction must be outlined. Alternative dispute mechanisms such as negotiation, mediation and arbitration can be considered.

Conclusion:

It is essential to engage experienced legal professionals to assist with structuring the purchase and sale of a business transaction to mitigate against legal risks and ensure a smooth business transition. They can identify legal issues, ensure compliance with relevant laws and regulations.