Posts tagged with: legal

What’s Required on the Legal Side of Exit Planning and Execution?

Just like exit questions we have discussed before, there’s a whole set of legal elements, preparation, documents, asset/stock/cash mix trade-offs for buyers/sellers, the process sequence, real estate, closing, agreements and the Closing Package that you need to prepare and work through to make your business buyer ready at the closing.

I’ve compiled a simple list of documents, decisions and pieces you need before you can transfer ownership of your business.

I’m not an attorney. This list of what’s needed  is just to get you started when you seek out appropriate attorneys for your exit planning team. You may need to hire specialists in each area, depending on how unique your situation is. The attorney who helped you start the business, the attorney who prepared your divorce, the attorney you use for real estate transactions is likely not the specialized attorney you need to prepare your business for exit.

Agreements including every confidentiality /non-disclosure/non-solicitation agreement with everyone, including:

  • Customers
  • Vendors
  • Employees
  • Competitors

Advance Preparation checklist:

  • Confirming asset ownership
  • Identifying intellectual property
  • Protecting intellectual property
  • Check for liens
  • Corporate entity definition, location and status
  • Review, Complete, Update all corporate documentation including:
    • Annual reports
    • Corporate minutes
    • Tax filings
  • Assess, revise and develop continuity contracts covering:
    • Key management and employee contracts
    • Vendor contracts
    • Key customer contracts

that extend beyond your exit and that add value to the business.

  • Deal with any legal skeletons that are there. If they are there, you must resolve them because the buyer will find them during due diligence.

Explore and translate the asset vs. stock deal in the actual exit option you choose.

  • What is good for one party is not always good for the other party
    ex: in a stock sale, the buyer is buying shares of a company along with the liabilities – which will require more due diligence
    ex: in an asset deal, you as the seller may retain ownership of the company while the buyer buys specific assets required to run the business.
  • Define the agreement and understanding on the use of the name, brand, use of a name – especially if the brand is tied closely with the use of a family name
  • An asset deal  may require contracts, other documents and due diligence in order to transfer ownership

Processes to bring your business sale transaction to closure:

  • Non-binding Letter of Intent (LOI)
  • Purchase Agreement – including
    • Representations and warranties and survival of those representations and warranties
    • Indemnification
    • Arbitration provision
    • Allocation
  • Due Diligence
  • Contingency dates
  • Closing event and the transaction itself

Due Diligence Review will include:

  • Importance of other members of the exit team
  • Current, pending or potential litigation
  • Skeletons – if they exist, the buyer will ferret them out
  • Environmental issues and implications
  • Regulatory restrictions
  • Non-compete agreements
  • Employment agreements with key management and employees and the impact/implications for the seller

Real Estate – owned, leased, mortgaged, contracts, are they part of the sale or a separate deal

Closing Event/Closing Transaction Package Preparation

  • Ensure seller’s security in any earn-out, employment agreement or promissory notes
  • Non-compete agreements clear, agreed, up to date and countersigned
  • Employment agreements clear, agreed, up to date and countersigned
  • Documenting the conduct of business pending the exit event

This is just one area where it is apparent that you just can’t work through all this alone to attain your ideal exit. Note the scope of what the attorneys can do. It is important to recognize that  even with the right attorney at your side, the two of you can’t do it all. You need a whole team of trusted advisors, not just one.

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