The ABCs of Buying and Selling a Business

Buying and selling a business can be a stressful undertaking to manage without the help of an experienced professional. There are many details to consider and the attorneys at Waugh PLLC can help you navigate through this process to avoid costly mistakes to ensure your transaction goes smoothly.

Methods of Sale

Generally, there are two methods to sell a business which involves structuring the sale as either an asset sale or a stock sale. In a stock sale, a buyer purchases the ownership interest of an entity.

Conversely, the parties can structure a transaction as an asset sale. Under this method, a buyer purchases the business assets and does not assume any liabilities of a business except those that are specifically agreed upon by the parties. In some cases, an asset sale may be more advantageous for a buyer for tax and other purposes.

Critical Steps

There are several documents to consider in a purchase-sale transaction. A document that parties should become familiar with is a non-disclosure agreement (NDA). An NDA secures confidential information of a seller which may include sensitive information such as, customer lists and trade secrets. Upon signing an NDA, a buyer is prevented from sharing such proprietary information with third parties. Further, a well-drafted NDA should ensure that a buyer is prohibited from soliciting employees or exploiting sensitive information of a seller in the event that a deal fails to close.

Another important document that parties should be aware of is a letter of intent (LOI). An LOI memorializes the salient terms of a deal. It is nonbinding and includes terms such as, price, payment terms, closing conditions and requirements for due diligence. An LOI also serves as an initial “meeting of the minds” of the parties and confirms their understanding of material provisions of the underlying transaction.

Upon execution of an LOI, a buyer will perform due diligence which involves verifying pertinent information provided by a seller. Typically, information examined during this phase may include, financial statements, governance documents, qualifications of the management team, debt obligations, status of outstanding legal claims and contingent lawsuits. For most buyers, due diligence is a condition precedent to consummating a transaction - if a seller fails to meet the reasonable requests or expectations of a buyer during this phase the transaction is unlikely to close.

Upon satisfaction of due diligence, a purchase sale agreement is drafted. It contains the culmination of all offers and terms that have been negotiated between parties and essential provisions unique to that transaction (i.e., clawback provisions, non-compete provisions, indemnification provisions, etc.).

The Takeaway

This article provides a glimpse of the many intricacies involved in a purchase-sale transaction. Parties involved in the purchase and sale of a business should be mindful that the “heavy lifting” occurs at the negotiation phase and should consider retaining counsel at that moment.

If a party is seeking to purchase a business as a stock sale, it should pay close attention to any and all liabilities being assumed. During due diligence, a buyer should confirm that financial and other pertinent documents provided are accurate and enable them to thoroughly vet key performance aspects of a business such as, profitability, composition and skillset of the management team, technology, and market strengths and weaknesses.

Moreover, a party seeking to sell their business should consider mitigating inherent risks before listing it on the market. A seller should identify and resolve any potential issues that could decrease the reputational and intrinsic value of a business. Further, having a business appraisal done may be worthwhile to determine the ballpark of offers to entertain from potential buyers.

Having a knowledgeable and experienced attorney help navigate the purchase and sale of a business can minimize costly and avoidable mistakes. At Waugh PLLC, our experienced attorneys walk with our clients step by step to ensure they avoid the pitfalls experienced by many sellers and buyers.

If you would like to schedule a consultation to discuss the purchase or sale of a business, feel free to reach out to us at