Legal Tips if Your Business Is in a Buyout
Some things New Jersey entrepreneurs need to knowBy S.M. Oliva | Last updated on January 11, 2023
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- Review the Existing Governing Documents
- Get an Outside Appraisal of the Business
- Consider All Options With Respect To Financing
- Hire an Experienced New Jersey Business Attorney
- Make Sure Everything Is in Writing
Review the Existing Governing DocumentsAs mentioned above, the best-case scenario for most businesses is to anticipate the possibility of a buyout in advance. In a New Jersey LLC, for example, the members should have executed an operating agreement when the company was formed. A well-drafted operating agreement includes provisions to deal with the death, resignation or buyout of a member’s interest in the business. The agreement should clearly state the conditions that can trigger a buyout, how a price should be determined and who is eligible to purchase the interest.
Get an Outside Appraisal of the BusinessWhen you buy or sell a house, you typically get an appraisal to determine whether or not the sales price accurately reflects the local market. The same should be true of a business sale or purchase. The parties should agree on an outside consultant to conduct an impartial valuation of the business. If for some reason the parties cannot agree on a single appraiser, they should still each hire their own consultant so they have a better idea of where things stand while they negotiate a final price.
Consider All Options With Respect To FinancingEvery buyout will not be a simple cash deal. Particularly when small businesses are involved, buyers and sellers may need to consider more “creative” financing options. You also need to carefully consider what New Jersey law permits with respect to selling or restructuring a business.
Hire an Experienced New Jersey Business AttorneyBuying a business is not like purchasing a used bicycle on Craigslist. It is a complex transaction with a number of legal and financial ramifications for all parties involved. This is why working with a qualified New Jersey business attorney is essential, especially if something goes wrong and it becomes necessary to modify or unwind the deal. Loikith recommends working with an attorney from the day you originally start the business for legal advice. “If you get to the point where people are talking about valuing businesses after the fact,” he notes, “maybe you should be talking to a litigator.”
Make Sure Everything Is in WritingAgain, a business buyout is not the place to rely on a “handshake” deal. There must always be properly executed written agreements to ensure the purchaser and seller understands their rights and responsibilities. Getting it in writing is not a matter of creating busywork for the lawyers. It’s about ensuring there is no ambiguity in the final agreement, allowing the business to successfully continue once the sale is complete. For more information on this area, see our overview of mergers and acquisitions.
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