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Maryland Business Asset Purchases

An acquisition is where one person purchases an entire business from another. After the letter of intent stage, acquisitions usually follow a common procedure. The letter will usually specify whether the buyer is purchasing shares in a corporation that owns the business, or the business assets themselves. Thereafter, the parties (and their lawyers) complete a detailed asset or share purchase agreement. Once the agreement is finalized, the buyer investigates the business - typically knows as the due diligence phase -, and thereafter, so long as the buyer is satisfied with the results of its due diligence investigations, the transaction can close.

Completing the asset or share purchase agreement is a crucial task. The agreement is designed to set out the transaction in much greater detail so that the parties can use it as a roadmap for due diligence and closing. Depending on whether you are purchasing assets or shares, the agreement can address issues like:

• Jurisdiction and Governing Law (an issue that could arise if you are doing a cross-border or inter-provincial transaction);
• Purchase Price Payment (such as whether a portion of the purchase price will be paid later and secured with collateral);
• Tax issues;
• Representations and Warranties about the business (for example, whether the business has liabilities, whether it is being sued or whether its employees are unionized); and
• Indemnities, save-harmless obligations and purchase-price holdbacks in the event that something goes wrong.

After the agreement is finalized and completed, the due diligence phase begins. Any problems (like a wayward lien, or an undisclosed creditor) are brought to the seller’s attention so they can be rectified (usually with the assistance of the lawyers). Tax problems that arise are usually solved by tax accountants, tax lawyers and/or other tax professionals. When the due diligence phase ends and buyer is satisfied that the problems are resolved, the parties can close. It is not until the closing that the money (if any) changes hands and the transfer of the business from seller to buyer takes place. This transfer is usually affected through a large number of closing documents signed by one or more of the parties. The number of closing documents usually depends on the number of issues that have arisen during the due diligence stage and they can range from as little as 30 documents to as much as 70 (or even more for multi-million dollar deals).

Acquisitions are exciting but also risky and time-consuming, and the right lawyer can make the process significantly easier. At The Kramer Law Firm, we have a thriving acquisitions practice so if you are buying a business, call a KLF lawyer.

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