Negotiating and drafting a purchase agreement of a business for sale is obviously a critical component to the business buying process. Buyers often ask me how much the attorney fees will be and unfortunately, that is a very open ended question.
A lot depends upon the extent to which you involve your attorney in the process. If you take the attitude of simply handing over the entire negotiations to them, you are going to incur a whopper of a bill for their services. Besides their costs (justified or not), I have yet to encounter too many attorneys who are anywhere near as effective as a savvy buyer at negotiating the deal terms.
Deals get done between buyers and sellers. Not attorneys, accountants or brokers. While they have their roles, the two key parties to the deal,
the one who is buying and the one who is selling are the people that can make it happen and get the deal to the closing table.
Attorneys have their role undoubtedly, but to me, that should be limited to three main areas: First, to scribe the deal terms that a buyer and a seller have agreed to in legalese that is crystal clear. Second, to be certain that the agreement properly protects you through to the closing regarding due diligence and the satisfaction of all deal terms as well as post closing should any situations arise where the seller may be in breach of the deal. Finally, to be certain that all necessary closing documents are included and all you are in full compliance of all legal issues.
In most cases, it is not necessary for any attorney to draft a brand new purchase agreement, besides, even if they say they will, they will use a lot of boilerplate language. To this point, if there is a business broker involved in the deal, they will certainly have an agreement that can work as a template for you, in most deals. There are however several additional and important clauses to add including:
- All conditions and contingencies that are particular to the business you are planning to acquire.
- Due diligence language that is entirely in you favor – including a proper timeline to complete your review and the ability to walk from the deal through to the end of the due diligence period for any reason, at your sole discretion, and to receive the full return of any deposits made.
Never allow there to be parameters that you must for example “accept” the financials if they are within x percentage (a common clause in broker contracts).
This makes no sense. If the numbers are correct but you uncover that one client represents sixty percent of the volume, or any other possible “deal-breakers”, you certainly cannot be bound to the deal.
Some broker contracts include clauses whereby the buyer could potentially be liable for the broker’s commission or may allow the broker to put a lien on the business if the seller doesn’t pay them.
Again, this is completely ridiculous. The broker’s deal outlining the terms of their arrangement with the seller is a separate agreement between them. The purchase agreement is only between the buyer and seller (the broker is not a party to it). If there is an issue between them, it is their problem, not yours as long as you did not collude with the seller in any way (i.e. circumvented the broker or by breaking the non-disclosure agreement you signed with the broker in any way).
If the seller doesn’t pay the broker for whatever reason, they have to fight it out, and allowing yourself to potentially be on the hook for their fees or letting the broker put a lien on the business after you buy it is not only dangerous, it simply doesn’t make sense.
Outside of these points,
a template purchase agreement available from most business brokers is a perfect starting point upon which your attorney can fill out the rest of the agreement.
And, by making sure you negotiate with the seller directly and using your attorney for drafting and including the legal points, or to only get involved where you simply cannot resolve a point with the other party, you will keep your legal costs down and have a solid agreement in place.