Retaining a Lawyer
Retaining a Lawyer
One of Shakespeare’s characters in Henry VI, states “First thing we do, let’s kill all the lawyers”. This line has been misinterpreted, and it is actually praise to the legal profession. But that’s for English lit class. If you are buying or selling a business, you are going to need an attorney to represent your interests. Thus you should be aware of what legal tasks need to be performed if you are a buyer; there is usually somewhat less legal work entailed if you are the seller, and this article has been written from the buyer’s perspective.
As a buyer, you need your attorney to review the contract of purchase and sale that is usually prepared by the seller’s attorney. Generally speaking, there will be a number of issues that will have to be negotiated between your attorney and the seller’s attorney. These include leases, non-compete agreements, lien searches, your term of employment, if any, transfer of security deposits, State licenses that may need to be transferred, and how accounts receivables and accounts payables will be dealt with. This article is too brief to deal with all of these issues, but two of the most important ones are the non-compete agreement, and the employment agreement.
The non-compete agreement legally obligates the seller to not engage in his or her current occupation for a certain period of time within a certain geographic area. The non-compete agreement must be reasonable in scope with respect to both time and geography. The buyer must also pay the seller for the non-compete, and prior to closing, an allocation must be made concerning how much of the purchase price is to be allocated to the non-compete. The valuation of non competes is beyond the scope of this article.
As regards the employment agreement, you the buyer will probably require that the seller work for you for a certain period of time; this period of time may be from several weeks to several years, depending upon the business and the buyer’s prior industry experience. A great deal of what the buyer is paying for is the seller’s expertise and business connections. During the seller’s term of employment, he or she is entitled to reasonable compensation for services rendered; reasonable compensation generally means what an outside non-owner employee would be paid to provide the same, or similar services, as will be required of the seller, or former owner.
Be sure to give careful thought and consideration to the selection of an attorney when purchasing a business; at the minimum, s/he should have small business transaction experience, and have some knowledge of your industry. We have found that legal fees will generally be $3,000 – $5,000, but Crown Business Brokers, LLC is in the New York area, and this will vary greatly by region of the country.
This article is not intended to be a rendering of legal, accounting, tax or other professional advice. Assistance from a competent professional in these specific areas should be sought.