An acquisition agreement is a contract that governs the purchase of one company by another.The purchase agreement is one of the many documents that make up the acquisition agreement.If you or your company decide to acquire another business, it is important that you draft a legally sound document to protect your interests.
Step 1: An attorney should be retained.
It is very difficult to purchase another business.An experienced business attorney can help you at every step of the process.An attorney can negotiate the terms of the deal, draft the legal documents, and finalize the transaction.If you don't want an attorney for all of the acquisition process, you should at least consider hiring a lawyer to review the materials that you draft.You can check to see if grievances have been filed against local attorneys through state bar associations.The American Bar Association has a list of state-by-state bar association information.
Step 2: Contact the business.
One of the first things you should do when buying a business is to make contact with the business owner to see if they are interested in selling.You want to know if it is a sound business decision for the potential purchaser or seller.There are several ways in which a buyer can approach a potential business for acquisition, including reaching out directly to the business owner and asking for a one-on-one meeting to discuss mutual opportunities.This allows a potential buyer and seller to see if they can work together.Some people think a joint venture is a better way to get in touch with a potential seller.The potential buyer enters into an agreement with potential business acquisitions to have a closer look at the business before buying it.It allows a potential seller to see what it would be like to work with the acquiring company.A potential buyer can get in touch with business owners to see if they would be willing to sell.The method allows a potential buyer to keep his or her interest hidden while making inquiries.
Step 3: There is a non-disclosure agreement.
If a potential buyer and seller enter into a non-disclosure agreement, it may be best if the company decides to sell.This agreement would establish parameters for confidentiality so that a potential seller could turn over business documents and a buyer would be required to keep them confidential.There is a sample confidentiality agreement related to an acquisition at: http://www.allbusiness.com/asset/2015/02/15.4-Confidentiality-Agreement-in-Connection-with-Merger-or-Acquistion.
Step 4: A letter of intent can be drafted.
A letter of intent is a non-binding agreement between both parties that outlines their intent to enter into an agreement, sets forth the exchange of information, and establishes a purchase price for the business.A period of time during which the seller is restricted from attempting to sell the business to someone else may be included in these letters.
Step 5: It is necessary to conduct due diligence.
All assets and liabilities must be examined by a buyer of a potential purchase.Due diligence is what this examination is referred to as.Prospective buyers should look at the reasons the company is selling and the previous attempts to sell the business.How difficult it would be to take over the company is evaluated.The company's organizational structure includes regional offices, subsidiaries and employee reporting.Key employees and employee compensation are included.There are lawsuits that originate outside of the business as well as employee injury and discrimination claims.Employee benefits include insurance, pensions plans, vacation and sick time.Financial records include financial statements, cash flow analyses, assets, liabilities, and expenses.Business assets include real estate and intellectual property.Shareholder agreements and equity partner agreements are included in the business structure.The due diligence checklist can be found at: http://www.accountingtools.com/due-diligence-checklist.Major contracts are used to identify potential problems.
Step 6: You can choose an acquisition model.
An acquisition model is the way in which a buyer wants to purchase a company.There are two forms of acquisition, an entity purchase and an asset purchase.An entity purchase is when a buyer purchases a majority of the company's stock and becomes the new owner.A buyer buys all of a company's assets, including its real estate, office equipment, and intellectual property.Even though someone else has purchased all of the company's assets, the corporate structure is still in place.The tax benefit is provided by the asset purchase allowing the buyer to begin depreciating the acquired assets immediately.The buyer is not responsible for the acquired business' debts and obligations because it did not buy the business as a whole.It can be a benefit for a buyer.The seller wants to pay taxes at the long-term capital gain rate.Selling assets for a C corporation will leave sellers at risk of double taxation, one for shareholders and the other for the corporate entity.
Step 7: The purchase can be negotiated.
If a buyer completes the due diligence process, he or she can make a final offer on the business or walk away.If the buyer wants to move forward, he or she will draft a purchase agreement that is favorable to him or her and hopes that there will be negotiations with the seller.The purchase price is a critical component of the payment agreement and often an area of negotiation as both the buyer and seller will have different ideas about the proper value.As part of the purchase price, the buyer and seller will have to agree on the amount of working capital that is necessary to keep the business running.Inventory, accounts receivable and pre-paid items can be included in working capital.Buyers worry that sellers will not invest enough into the working capital since the sale is moving forward if the purchase price is increased.
Step 8: Determine the structure of the payment.
A buyer doesn't usually have enough capital to purchase a company on their own.The buyer has to line up his or her financing and determine the best way to acquire the company.The buyer signs a promissory note after making a significant down payment.The amount of payments and how long the buyer will take to payoff the seller are outlined in the promissory note.Some buyers will make a lump sum purchase.If the seller requires full payment or offers a significant discount, a buyer will make a lump sum purchase.
Step 9: The purchase agreement should be drafted.
An acquisition purchase agreement includes a description of the company, any representations made by the seller or buyer, and a timetable for completion.The following sections are included in a purchase agreement: An introduction, Terms and definitions, Transaction description, Representations and warranties, Agreements regarding closing the deal, signatures and exhibits.A sample asset purchase agreement can be found at: https://www.nysba.org/Work Area/Asset Download.
Step 10: The introduction and definitions need to be written.
The transaction, the parties to the purchase and sale of the business, and the type of sale should be described in the introduction.Thedefinitions section outlines all of the important terms used throughout the agreement after the introduction.The introduction does not usually carry legal authority, but is used to forecast the detailed agreement laid out in subsequent sections.Legal authority is carried by the definitions section.Working capital and purchased assets will be understood throughout the agreement.The wording of the definitions is often negotiated by both parties.
Step 11: The structure of the transaction is outlined.
The purchase price for stock or assets is set in this part of the agreement.Any agreements regarding working capital would be outlined in this section.Parties should agree on how to report the sale to the IRS.
Step 12: It's a good idea to draft warranties.
The seller gives any representations or facts that the buyer is relying on.The legal status of the business and the seller's authority to transact business for the company are generally addressed by the sellers representations.There are statements about the quality of the assets being purchased.Tax documents, financial statements, pending lawsuits, and environmental concerns are included.Retirement plans, employee information and other labor related information are included.The purchaser's statements about the financing and payments, his or her authority to enter into the contract, and the organization of the business.The section is usually a reflection of the due diligence process.
Step 13: Write agreements.
The obligations of the buyer and seller are set in this section.The bill of sale, any directors or shareholders agreements, Resignations of directors and officers, and Lease information are included in the documents that must be executed at the closing.The protection of claims for breach of covenants or warranties will be outlined in this section.
Step 14: The purchase agreement should be signed by you.
The acquisition agreement must be signed by both parties and the document must include the proper spelling of the parties' names.
Step 15: This is the transfer title.
All title documents for assets, real estate, and any other property that the buyer is acquiring must be provided by the seller at the closing of the acquisition.All of the seller's warranties and representations about the property, including any trademarks, are outlined in a bill of sale in an asset sale.When the buyer assumes the debts and obligations of the seller's business will be specified in the agreement.Until a board approves the sale and shareholders have the right to dissent, title can't be transferred.
Step 16: A non-compete agreement is a good idea.
The seller should sign a non-compete agreement.This makes sure that the seller doesn't start a new business in competition with the acquired business.A statement by the seller that he or she agrees not to engage in any business that would compete with the buyer for a specified period of time should be included in the non-compete agreement.An agreement by the seller not to solicit any of his or her former clients and a restriction on the amount of time he or she can work with them.The seller did not want employees to leave the company.There is an agreement to keep confidential information.A sample non-compete agreement can be found at: https://www.rocketlawyer.com/form/noncompete-agreement.
Step 17: Put the funds in an account.
A certain amount of money is required to be placed in an account at a bank by both buyers and sellers.The money is set aside to protect the buyer.Depending on the situation, the funds may be used to pay for obligations or the loss that the buyer suffered.The buyer may use the money to make up for the damages they suffered from the seller's breach of contract.You can download a sample agreement at: https://www.nysba.org/AreaWork/DownloadAsset.
Step 18: You need to file with the IRS.
After the acquisition, the buyer and seller need to fill out IRS Form 8594, Asset Acquisition Statement and file it with the tax returns for the year of sale.