Legal Positioning When Considering a Sale

Legal Positioning When Considering a Sale

     Legal positioning of the business has two broad objectives:

Sellers oftentimes bring a sale to the point of near completion only to find the sale cannot go through due to legal obstacles.  Therefore, an early goal of the sellers and counsel is to thoroughly review the corporate, contractual, financial and legal items that may constrain a sale and where necessary clear the impediments.

              A clearance checklist includes:

                  a). Does the seller have the authority to sell?  Where the business is owned by partners or multiple stockholders, verify that there is agreement to sell or the selling stockholder controls the requisite votes to authorize the sale.

                   b). Is the business owned by an estate?  Commonly, death of the owner will prompt an immediate sale.  Ascertain that the executor agrees to the sale and the probate requirements have been satisfied.  Where the sale requires court approval, any agreement to sell should be conditional upon court approval.

                    c). Is the business franchised?  The franchised business cannot ordinarily be sold without franchisor approval.  The conditions of assignment and the buyer requirements must be investigated.

                    d). Are there major contracts that may interfere with the sale?  Where the business depends on production or distributorship agreements or contracts with a primary customer, the contracts should be checked to determine assignability.

                     e). Is a sufficient lease available?  This point is repeated because so many small businesses are placed on the market without verifying whether an acceptable lease is available to the buyer.  Review the terms and assignability of the present lease or proposed terms of a new lease.

                      f). Is the business solvent?  Unless it is clear that the anticipated purchase price can fully satisfy creditor claims, determine the likelihood of creditors settling for partial payment or the need for partial payment or the need for reorganization proceedings or other debtor’s remedies to reduce debt prior to a contemplated sale

          Legal Checklist in Planning a Sale:

          There are numerous legal details that precede placing a business for sale.  The primary items subject to review may include:

                       a). Pending litigation and their impact on any proposed sale.

                      b). Employment contracts and whether they can be assigned or terminated without penalty.

                        c). Union contracts and their assignability.

                       d). Employee pension plans and profit sharing and their assignability or provision for termination.

                        e). Existing contracts and their assignability or rights to terminate.

                       f).  Secured loans, conditional sales agreements and equipment leases, to determine their current status and rights to assign or terminate.

                          g). Patents, trademarks and licenses, to determine whether properly filed.

                         h). Corporate records; to verify required filings and that corporate minute book is current.

                          i). Obligations between the owners and the corporation to determine conditions of termination.

                           j). Personal guarantees issued by owners of the corporation and the rights to terminate.

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