Once decided not to launch a new business, but to take over an existing one, the choice of appropriate acquisition technique depends on many factors that cannot be predicted and assessed at once. Even in case of having all necessary information, it can be difficult and time taking to choose the best legal way of business transfer for both parties to the transaction. Most often this relates to tax, liability of the buyer and seller and certain other matters.
In addition to the purchase and sale of the company and share purchase agreements, there are several legal ways to buy a business: execution of several separate contracts on sale of property rights, actual acquisition of the company by reorganizing the legal person.
In the early stages of the negotiations upon the decision of the way business sale and if share purchase is selected, the buyer’s right to carry out inspections and procedures thereof may be determined by executing a preliminary sales contract. In case of a company sale and purchase, it is not recommended to execute a preliminary agreement before inspection is completed, because the preliminary contract would require determining the future of one of the essential conditions of the contract – the company price. Therefore, if the way of business sale is not selected or if the company sales agreement is selected, the right to implement inspection should be provided for in a document on negotiations results – the letter of intent.
The seller usually enables the purchaser to carry out an inspection of the company. Checks can be varied, but in most cases it is useful for the purchaser to carry out legal, financial and tax inspection.
When inspecting a company, it is sought to determine the value of the business. There are several inspection alternatives. As mentioned above, the seller submitting some information about the company may confirm that the information is correct (if the purchaser who signed the contract establishes that the information was incorrect the seller must reimburse the buyer for the loss or pay a penalty if such penalty is provided for in the contract). Also, the parties may agree that payment of the whole amount or a part thereof be deferred (in such case the buyer acquires the company, checks it, and if it establishes certain problems due to which the price should be lower, he can not to pay the rest amount, however it is important that the parties would be expressly agreed on when they can reduce the price).
In some cases when after the transfer of the company or a part thereof, supply or distribution channels that were used by the company who sold the business, are closed. It is also often happens that the intellectual and industrial property rights used by the sold company remain in possession of the seller. In this context, the parties in addition to the contract on company sale may sign additional agreements, such as the on long-term supply of goods or services, rental, distribution or franchise agreements. Additional agreements along with the company purchase and sale agreement, in principle, are not necessary, but conclusion of them are justified by economic considerations and legitimate desire of the buyer for the business to operate not worse than before the acquisition.