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Frequently Asked Questions
Buying and Selling Businesses 101
Legal Links<tm>: Chain
1, Link 3A
Written by
Gregg
R. Zegarelli, Esq.
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What is a letter of intent and should I
use one?
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What is the difference between a "stock" deal and an "asset" deal?
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Any general
additional pointers?
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Do I need an
attorney?
There are two types of letters of intent:
binding and non-binding. BE CAREFUL, you need to know which one is
best for you.
A binding letter of intent is a contract.
It may look informal, but it is a contract. It could simply be a
coverletter.
A non-binding letter of intent is used to
focus discussions. Often non-binding letters of intent are used
prior to having attorneys draft the "real" agreement, also often called the
"definitive agreement." Without a letter of intent in this context,
business people would spend a lot of money having attorneys draft and
redraft contractual documents, even though the business people have not even
gotten close to a deal. However, a non-binding letter of intent should
clearly indicate that it is non-binding.
Sometimes letters of intent are entitled
"Letter of Intent," "LOI," "Memorandum of Understanding," "MOU" or "Term
Sheet."
You need to really analyze whether you need a
letter of intent at all. Possibly, you are able to go directly to
preparation of a definitive agreement, and, if so, that is generally
preferred. If you need a letter of intent--usually because the deal is
complex or the parties don't have comfort as to the terms being
discussed--then you need to think about whether you are better off "locking
down" an unclear deal with a binding letter, or merely focusing discussions
with a non-binding letter. Binding letters of intent are usually
discouraged by attorneys, because they are legally risky: you're agreeing to
be bound to a document that is, on its face, somewhat vague or incomplete of
details. In our experience, the only time binding letters are used is
when a business client understands the legal risks but the reward of locking
down the deal is a better business decision. Attorneys tend to prefer
a non-binding letter of intent or proceeding directly to the definitive
agreement.
Contact us for more details.
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What is
the difference between a "stock" deal and an "asset" deal?
A lot. For certain entities, such as
corporations, you can purchase a business by buying the stock of the
business or the assets of the business.
If you buy the stock in the corporation, then
you "step into the shoes" of the shareholders of the seller. That is,
as a question of organic corporate law, you take the corporation "as is."
If there are claims against the corporation, if the assets are fully
depreciated, if the corporation has a high unemployment compensation factor,
etc., you take the corporation as it is. If there is a problem, you
may have a claim against the selling shareholders for a breach of their
representations to you, but you are the owner of the corporation.
If you buy the assets of the company, you can
form a brand new corporation, then "pour" the purchased assets into the new
company. In this manner, you are merely a buyer of property. You
may be able to depreciate the property, you obtain new insurance facts and,
because the company is brand new, you know that there are no claims against
it.
Stock deals can make sense, you just need to
know exactly why you need to structure the deal as a stock deal. In
many cases, sellers prefer stock deals and buyers prefer asset deals.
Contact us for more details.
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- Perform computerized trademark and service mark research to
ensure that business names, product names, and logos thereof, are able to be federally
registered marks. Obtaining a corporate or fictitious name registration with a state does
not imply that the mark is available for a federal registration.
- Perform lien searches to assist with a
determination as to whether the assets are free and clear.
Contact us for more details.
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The issues addressed in this document are legally complex,
and the purpose of this article is merely to introduce you to a number of legal issues. You will need to retain an attorney to assist you with your specific
requirements. Generally, at the cost of hiring an attorney, you know that
you have professional assistance with protecting your interests.
Properly structuring a transaction requires an understanding of the
logistics, the
industry, and the legal options available to foster consummation of the transaction.
If you do not have legal representation, then
contact us. If you
have legal counsel, with whom you are currently satisfied for your general legal
representation, then suggest our services to assist as special counsel for
business-related issues. Our firm offers a number of pricing and payment opportunities, including
retainer-based discounts that may provide a significant savings for you.
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Contact us for more information:
Z e g a r e l l i
Home Page (click here)
Zegarelli Law Group
Profile
Upper St. Clair Administrative and Postal Office:
2585 Washington Road, Suite 134
• Summerfield Commons Office Park
Pittsburgh, PA
15241-2565 USA
Pittsburgh Office:
301 Grant Street, Suite 4300 • One Oxford Centre
Pittsburgh, PA 15219-1407 USA
Voice: 412.833.0600
Fax: 412.833.0601
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