By: John Glover (MBA)

Thinking about buying or selling a small business? Exciting times! But, let’s not get ahead of ourselves. Whether you’re the one selling or buying, a lot can go wrong without the right guidance. We’re talking about paperwork, negotiations, and yes, knowledge of legal regulations that can either make or break the deal.

Before you jump in, let’s walk through the five legal considerations that could save you a ton of headaches and, well, money.

However, you’ll probably want an experienced business lawyer on your side.

1. Contracts: Read Before You Sign

Imagine buying a car without a test drive. Crazy, right? Now, can you see yourself signing a contract to buy or sell a business without fully understanding what’s in it? Even crazier. Every contract you sign should be scrutinized like your life depends on it—because it might, financially speaking.

A contract isn’t just a piece of paper. It’s a binding agreement that can have long-lasting effects on the parties involved. One wrong clause, and you could be stuck with liabilities or commitments you never anticipated. 

Are the assets clearly listed? How about the liabilities? And what happens if something goes south?

If reading legal jargon isn’t your strong suit, guess who can help? That’s right, a business or contract attorney. They’ll comb through every word to make sure you’re not signing away your assets—or worse.

2. Due Diligence: Do Your Homework

It wouldn’t be right, for you wouldn’t buy a house without an inspection. The same principle applies when buying or selling a business. Due diligence is the process of verifying all the facts, figures, and conditions before sealing the deal.

For buyers, this means diving deep into the business’s financials, customer contracts, employee agreements, and if there’s any ongoing litigation. You need to know what you’re getting into, no surprises allowed.

For sellers, it’s about making sure everything is in order, so the sale can proceed smoothly. That means keeping all documents, contracts, and financial statements up-to-date and easily accessible.

Remember, any skeletons in the closet can turn into a nightmare later on. And those skeletons? A good business attorney will help you find—or hide—depending on whether you’re the seller or buyer.

3. Employment Matters: People Problems

People are the backbone of any business. If you’re buying, the last thing you want is to inherit a disgruntled workforce. And if you’re selling, you don’t want to leave your employees in the lurch.

Employment contracts, benefits, and any promises made to employees should be reviewed. Are there any non-compete agreements? What about unpaid bonuses or pending promotions?

If you’re selling, consider how the sale will affect your employees. Will they keep their jobs? Will their roles change? And if you’re buying, do you want to keep the current staff? If not, what’s the exit strategy?

Here’s where a smart business attorney becomes your go-to person. They’ll ensure you’re compliant with labor laws and that everyone walks away—more or less—happy.

4. Intellectual Property: More Than Just a Logo

So, you’re buying this cool coffee shop with a killer brand and a loyal following. But wait—do you actually own the brand? This is where intellectual property (IP) comes into play.

IP includes trademarks, copyrights, patents, and trade secrets. It’s not just about the logo or the catchy jingle; it’s about the heart and soul of the business. Whether you’re buying or selling, you need to know who owns what.

Does the business have any registered trademarks? What about patents on unique products or processes? Are there any trade secrets that give the business a competitive edge? Failing to secure the IP rights could mean paying through the nose later—or losing them altogether.

Guess who can make sure the IP is transferred correctly? You guessed it—your business attorney.

5. Tax Implications: Uncle Sam Wants His Cut

No one likes paying taxes, but we all have to do it. Buying a business or selling can trigger all sorts of tax obligations. We’re not just talking about the basic income tax. There are capital gains taxes, sales taxes, and possibly even property taxes to consider.

For sellers, it is important to understand how the sale will impact your tax situation. Will you take a hit on capital gains? Are there ways to structure the deal to minimize taxes?

For buyers, it’s about understanding the ongoing tax obligations you’ll inherit. What’s the current tax situation of the business? Are there any outstanding tax liabilities?

Taxes can be a complex web that’s hard to untangle. But with the help of a business attorney and a good tax accountant, you can keep Uncle Sam happy without breaking the bank.

Conclusion: Don’t Go It Alone

Buying or selling a small business is a big deal—literally. The stakes are high, and the risks are real. But with the right legal guidance, you can make sure the deal works out in your favor.

So, whether you’re ready to sell your business and sail off into the sunset, or you’re about to take the plunge and buy that dream company, make sure you have a business attorney by your side. It might just be the ideal investment you can make.

After all, in business, as in life, it’s always better to be safe than sorry.

Published by: Khy Talara