how to buy a business on asset sale without lawyer

Do I need legal advice when buying a business or asset?

Business Asset Sale: Basic Considerations. Article by Joanne Cassidy Co-Author: Samuel A. Mills. The three most common ways to transfer ownership of a business are by asset sale, stock sale and merger.. Each type of sale has certain advantages and disadvantages.

How do I buy a small business?

Jan 14, 2020 · An illustration. Recently, Active Law acted for a client purchasing a Queensland Body Corporate management business. Originally, the seller and the buyer had agreed to proceed by way of an asset/business sale and the seller’s solicitors supplied a standard REIQ Business Contract on this basis.

Should I Sell my Business as an entity sale or asset sale?

May 21, 2018 · An asset purchase is like having an all-you-can-eat buffet. It allows you to be able to pick what you want and ignore the funny tasting stuff. You have a chance to sample everything and pick only what you want. In an asset purchase, you essentially strip the business you want to buy to the bare bones.

Who owns the assets of a business when it sells?

How to Structure the Purchase or Sale of a Business A buyer can acquire a business in two general ways. First, he or she can buy company stock from shareholders—a "stock sale." Second, he or she can buy the company’s assets, from the entity itself—an "asset sale." Tax and liability consequences vary depending on what,

How do you buy company assets?

Business purchases are typically structured in one of two ways: a stock transfer or an asset purchase. A stock purchase involves buying the stock (or membership interest) of the company that owns the business. Typically, liabilities are assumed as well. An asset purchase involves just the assets of a company.

How does an asset purchase of a business work?

In an asset purchase, the buyer agrees to purchase specific assets and liabilities. This means that they only take on the risks of those specific assets. This could include equipment, fixtures, furniture, licenses, trade secrets, trade names, accounts payable and receivable, and more.Jan 12, 2022

What should be included in an asset purchase agreement?

Parts of an Asset Purchase AgreementRecitals. The opening paragraph of an asset purchase agreement includes the buyer and seller's name and address as well as the date of signing. ... Definitions. ... Purchase Price and Allocation. ... Closing Terms. ... Warranties. ... Covenants. ... Indemnification. ... Governance.More items...

What happens to contracts in an asset sale?

In an asset sale the target's contracts are transferred to the buyer by means of assigning the contracts to the buyer. The default rule is generally that a party to a contract has the right to assign the agreement to a third party (although the assigning party remains liable to the counter-party under the agreement).May 12, 2013

What are 3 types of assets?

Common types of assets include current, non-current, physical, intangible, operating, and non-operating. Correctly identifying and classifying the types of assets is critical to the survival of a company, specifically its solvency and associated risks.

Is cash included in asset sale?

Asset sales generally do not include cash and the seller typically retains the long-term debt obligations. This is commonly referred to as a cash-free, debt-free transaction. Normalized net working capital is also typically included in a sale.

Why do buyers prefer asset sales?

Buyers often prefer asset sales because they can avoid inheriting potential liability that they would inherit through a stock sale. They may want to avoid potential disputes such as contract claims, product warranty disputes, product liability claims, employment-related lawsuits and other potential claims.

How is an asset sale taxed?

In an asset sale, sellers are subject to potentially higher taxes than in a stock sale. While intangible assets, such as goodwill, are taxed at capital gains rates, other “hard” assets may be taxed at higher ordinary income tax rates. Currently, federal capital gains rates are around 20%, while state rates vary.

What is taking possession of an asset by purchase?

An asset purchase agreement allows a company to take possession of all the tangible and intangible assets and property owned by the business being acquired without becoming owners of the company itself.

Is an asset purchase agreement binding?

The asset purchase agreement is often drafted up towards the end of the negotiation stage, so that the parties can have a final record of their agreement. The document essentially operates as a contract, creating legally binding duties on each of the parties involved.Jun 25, 2018

How do you account for asset acquisition?

Asset acquisitions are accounted for by allocating the cost of the acquisition to the individual assets acquired and liabilities assumed on a relative fair value basis. Goodwill is not recognized in an asset acquisition.Sep 10, 2020

How is goodwill treated in an asset sale?

When a corporation is sold in an asset sale, a separate sale of a shareholder's personal goodwill associated with the corporation can result in the gain from the sale of the goodwill being taxed to the shareholder at long-term capital gains rates.Apr 30, 2014

What does "assets" mean in business?

As a business buyer, assets are all of those things that are important to owning, operating, growing and eventually selling, the business. All asset sales must fully describe the assets being purchased and it is also a good idea to generally describe any assets that are not being purchased. Assets might include:

How to transfer ownership of a business?

The three most common ways to transfer ownership of a business are by asset sale, stock sale and merger . Each type of sale has certain advantages and disadvantages. This article will discuss some basic considerations when deciding whether to purchase a business through an asset sale.

An illustration

Recently, Active Law acted for a client purchasing a Queensland Body Corporate management business. Originally, the seller and the buyer had agreed to proceed by way of an asset/business sale and the seller’s solicitors supplied a standard REIQ Business Contract on this basis.

Takeaways

None of this is set-in stone and ultimately proceeding with an asset/business sale or share sale can turn on the circumstances and whether you are buying or selling a business, you should seek professional advice to ensure the most appropriate structure is used to minimise unnecessary complications moving forward.

What are the options for buying a business?

There are two basic options for buying a business, you can either choose an asset purchase or a stock purchase. Deciding which to choose between the two options can be a fine art.

Who is Romy Jurado?

Business & Immigration Lawyer to Entrepreneurs, Start-ups, Small Business and Foreign Investors. Romy Jurado grew up with the entrepreneurial dream of becoming an attorney and starting her own business. And today, she is living proof that dreams really do come true. As a founder of Jurado & Farshchian, P.L., a reputable business, real estate, and immigration law firm, Romy’s practice is centered primarily around domestic and international business transactions – with a strong emphasis on corporate formation, stock and asset sales, contract drafting, and business immigration. In 2011, Romy earned her Juris Doctor degree from the Florida International University College of Law. She is fluent in two languages (English and Spanish) and is the proud author of Starting a Business in the US as a Foreigner, an online entrepreneurial guide. Call for a Consultation 305-921-0440.

What is asset purchase?

An asset purchase is like having an all-you-can-eat buffet. It allows you to be able to pick what you want and ignore the funny tasting stuff. You have a chance to sample everything and pick only what you want. In an asset purchase, you essentially strip the business you want to buy to the bare bones. Then you pick the assets you want and leave ...

Why do buyers prefer to buy assets?

One reason (there are many others) that buyers prefer to purchase the assets of the selling business, rather than the stock or other equity interests held by the owners, is to avoid assuming liabilities of the business being sold. Most buyers prefer to cherry pick the assets ...

What is successor liability in bulk sales?

Successor liability also shows up in the case of bulk sales. A bulk sale is the sale of most of the assets of a business outside the ordinary course of business. Most bulk sales acts apply only to a seller whose principal business is the sale of inventory from stock, including those who manufacture what they sell.

What is successor liability?

There are certain circumstances where a buyer will be responsible for certain liabilities of the selling company despite structuring the deal as an asset purchase and despite specifically excluding those liabilities from the deal. This area of the law is called “successor liability” because the buyer, as successor to the seller with respect to ...

What is de facto merger?

De Facto Mergers. Some courts have imposed successor liability on buyers of business assets under a theory known as de facto merger. As the name “de facto merger” suggests, courts determine that in certain cases, the asset purchase is for all intents and purposes a merger. Mergers, like stock purchases, transfer all the liabilities ...

How to structure a M&A deal?

When buying and selling businesses (this is generally called “mergers & acquisitions” or, just “M&A”), there are three ways to structure a deal –. The buyer can purchase the assets of the seller. The buyer can purchase the stock (or other equity interests) of the seller directly from the owners, orz. The buyer and the seller can merger themselves ...

What is the duty of a buyer to warn customers of defects in the seller's products?

In general, this doctrine has two prongs. First, the buyer must know about the defects in the seller’s products, and second, there must be some continuing relationship between the buyer and the customers of the selling business, e.g., an obligation to service the products manufactured or sold by the seller. Buyers often purchase the goodwill of the seller. In some cases, the purchase of goodwill may be deemed to include an obligation to assume liability for unforeseen product liability claims that arose before the closing of the deal.

Who is Brett Cenkus?

Brett Cenkus is a business attorney with 18+ years experience based in Austin, Texas. He has worked with a variety of businesses and has clients throughout Texas as well as many technology clients throughout the United States. Brett is a Harvard Law graduate with a sharply seasoned mind and an entrepreneurial heart. As a founder of 6 companies himself, he is especially passionate about helping startups succeed. In 2016 Brett was named the winner in the Individual category for RecognizeGood’s Ethics in Business & Community Award. He offers businesses solutions that are in sync with their culture, goals and values. You can learn more about Brett by visiting the About page on this website.

What to do when selling a business?

Managing assets when selling a business. If you do agree to an asset sale, give careful thought to which assets you’ll sell off with the company. As you prepare for the sale, remove unproductive or nonessential assets from the business. The buyer isn’t likely to pay extra for them, and you may be better off selling these assets yourself.

What is an entity sale?

In an entity sale, you sell either your shares of corporate stock or your membership interests in an LLC. The business’s assets (equipment, furniture, real estate, inventory, accounts receivables, etc.) continue to be owned by the entity, and the entity owned by the buyer. In an asset sale, your corporation or LLC sells its assets to ...

What is due diligence in real estate?

Due diligence is a term you often see in real estate documents but they also apply to the documents which pertain to selling a business. As mentioned in the first step, the terms of due diligence are outlined in the Letter of Intent. Due diligence is when the buyer does their own research into all aspects of your business. They will want to look at your financial records, customer records, sales reports, profit & loss statements, expense statements, leases, business loans, business contracts and so on. All this information will help them decide whether they want to purchase your business.

Why do you need a letter of intent?

That is why a Letter of Intent should have a confidentiality agreement which prevents the buyer from using your information or revealing it to another source if the sale does not occur. This is the best protection you can give yourself as a seller while you’re trying to secure a purchase agreement with a buyer.

What happens when you sell a business?

When you go to sell your business, there is a certain legal process involved that must be followed. It’s not like you can just have the buyer write you a check and then let them take over your business. There are a few legal steps to closing the sale of your business which ensures that it will be a successful transaction for both parties. Otherwise, you run the risk of facing legal ramifications after the sale if the buyer becomes unhappy with some aspect of the business that they purchased from you.

How many pages are in a purchase agreement?

Be aware that a purchase agreement is not some 2-page document. Depending on the size of your business and the number of terms outlined, it could have hundreds of pages to it. That is why it is best to have an attorney who is experienced in contractual law to handle the agreement and review it for you.

What is the first step in a letter of intent?

This is a legal document that summarizes all the conditions and terms of the transaction, such as the purchase price, due diligence terms, deposit amount, and so on. Some buyers will create their own Letter of Intent and then submit it to you for approval.

What happens if you don't sign a letter of intent?

After the Letter of Intent is signed by you and the buyer, they can now use this legal document to show to lenders for the purpose of securing a loan to purchase the business.

What is a purchase agreement?

Unlike the Letter of Intent, the purchase agreement is a binding contract that will obligate the buyer to purchase your property for the price and terms agreed upon in the document. At this point, you should have an attorney create this purchase agreement for you. Sometimes the buyer will have their own attorney do it.

What is a business purchase agreement?

A business purchase agreement (or stock purchase agreement for a corporation) is used when a buyer is acquiring an entire business, its assets and its liabilities, including its debts and obligations such as unpaid taxes or potential lawsuits . However, the most common arrangement for buying a small business ...

How long does it take to sell a business?

The process of selling a business takes a minimum of several months. Among other steps, you will want a potential buyer to sign a nondisclosure/confidentiality agreement before providing details about your business operations.

Preliminary Negotiations & Discussions

• At this stage, the buyer does its investigation of the seller to determine the value of the business or assets it is buying. This usually involves an extensive review of the seller's finances and assets so the buyer can make its own determination regarding value. How much due diligence the buyer does will depend in part on whether it's a stock or a...

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Formal Agreement & Pre-Closing

Closing

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