Buying a Business

Do I need a lawyer when buying a business?

Lawyers are:

1. experts at identifying the risks that can derail or destroy a business.
2. can identify opportunities for business improvement.

This is the case whether you are buying a business for $100,000, $1,000,000 or $10,000,000.

It is often the business person buying a small business that challenges the need for a lawyer the most. This is usually because the cost of engaging a lawyer on such a small business purchase can represent a significant percentage of the purchase price.
However, it is often these business people that get the most value from engaging a lawyer when buying a business. This is because they often have the most to lose. They are often putting everything on the line for the business to succeed.

It must be remembered that a business person’s liability with respect to the business is not limited to their initial investment in the business represented by the purchase price.

1. Often, they are borrowing money from the bank to purchase the business. The bank will take a mortgage over their house and possibly other properties. Therefore, if the business fails, they could lose their house.
2. They will often take over or enter into a lease for the business premises. Even for a small business, rentals can exceed $100,000 per year. If a business fails, this is an exposure of $500,000 on a 5 year lease.
3. Then there is possibility of falling short of the law. Could be as simple as selling a defective product or forgetting to lodge a government form on time. These could lead a business owner to be up for significant losses and in some cases, imprisonment.

So how can a lawyer help?
A lawyer can help by identifying the risks that may impact on the success of the business. For example, by ensuring:

1. the assets being purchased are in fact the property of the owner and will be properly transfer to the buyer;
2. contracts with key suppliers can be transferred to the buyer and without significant adverse changes;
3. that key employees will be re-employed by the buyer;
4. the lease for the premises allows the buyer to use the premises in the manner and for as long as is necessary for the buyer to obtain a return on it’s investment;
5. the buyer will have all the licences and permits it requires to run the business;
6. the seller is restrained from competing with the buyer after completion.

A lawyer can also help capitalise on opportunities for the business owner also.
For example:

1. negotiating more favourable terms with a supplier as a term of purchasing the business;
2. pursing additional licences or permits that add value to a business like a liquor licence or a footpath dining licence;
3. pursuing trade marks or other intellectual property that set the business apart and give it a competitive advantage from copy cats.
4. structuring the ownership of the business to obtain better tax outcomes;
5. formalising employee incentive packages or profit sharing structures that can increase the productivity of workers.

By identifying and addressing risks and assisting the business owner capitalise on opportunities, engaging a specialist business lawyer in most business purchasers can have a significant impact on the success of the business.

Joe Kafrouni, Legal Practitioner Director, Kafrouni Lawyers

Disclaimer

The information provided by Kafrouni Lawyers is intended to provide general information and is not legal advice or a substitute for it. Business people should always consult their own legal advisors to discuss their particular circumstances. Kafrouni Lawyers makes no warranties or representations regarding the information and exclude any liability which may arise as a result of the use of this information. This information is the copyright of Kafrouni Lawyers.

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