CONSULTING A LAWYER BEFORE DOING A ‘HAND SHAKE’ DEAL TO MERGE OR BUY A BUSINESS

April 3, 2017

Getting an attorney’s advice before doing a ‘hand shake’ on the terms of a deal is a critical preliminary step to ensure that the deal succeeds.  Do not sign a ‘letter of intent’ before talking to a lawyer. Doing this will help:

 

Structure the deal with the benefit of both practical and legal insights

 

Often parties’ make commitments on a ‘hand shake’ without fully appreciating the practical or legal consequences of what they are agreeing to.  For instance, a buyer may agree to a price for the purchase of a business with the expectation that certain real estate interests are included in the purchase.  Often times, however, real estate interests are not owned by the seller per se (often it is a different corporate entity) and therefore the seller cannot include those interests in the sale.  If the buyer has already ‘committed’ to the purchase price without realizing that the real estate interests are excluded, it will be more difficult to renegotiate the price.

 

Narrowly tailor non-disclosure and restrictive covenants so they don’t impact the buyer’s ability to do business in the future if the deal does not close

 

One of the first documents that sellers ask buyers to sign is a non-disclosure/restrictive covenant; that document protects any information or trade secrets shared by the seller with the buyer during sale negotiations.  If the deal does not close, the buyer may be prevented from conducting its own business in the normal course because a poorly worded or overbroad non-disclosure/restrictive covenant may impinge on those operations.

 

Reduce the length and cost of negotiation and drafting

 

An attorney will help focus the negotiations on the key terms to the deal.  For instance, the parties’ may initially overlook the issue of uncollected accounts.  This valuable asset must be accounted for and a procedure worked out as to how to handle the fate of the future cash flow.  Tracking the accounts receivable is a costly endeavor for the buyer but getting credit for them is generally critical to the seller.  Early consideration of an important issue like this makes it imperative that the buyer consult a lawyer before giving a ‘hand shake.’

 

The attorneys at the Bachman Law Firm understand your business and formulate creative legal solutions to enable you to reach and exceed your goals.  You can reach us at 845-639-3210 or Judith@thebachmanlawfirm.com.

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