Obtaining Legal Services

[TromboneAl]

I've talked here about selling my business, and now I have someone who is interested in acquiring it (yay! True retirement on the horizon).

Now I will want to have a lawyer either draw up a contract for the sale, or look over the contract that the buyer proposes.

How should I go about finding a lawyer for this pupose? I could ask my accountant and others around here for recommendations, but actually I see no reason to use a local attorney.

Any suggestions or specific recommendations, Martha or others?

Thanks,

 

[Martha]

Often the buyer, who is making the offer, draws up the contract. You could then have a lawyer look at it for you. But sometimes it is nice to just do things the way you want from the get go, so I generally like to be in the drivers seat and draw up the contract even when representing a seller.

Get a business lawyer, not some guy who does a bit of everything. Most any business lawyer should be able to do an asset purchase agreement. You probably have to go to a mid size or larger firm, but that doesn't mean it should cost a bundle. I would also ask your accountants who they recommend.

 

[wabmester]

If it were me, I'd let the buyer do it.   The agreement can get pretty complex and expensive.   Personally, I've only done two transactions.   The legal fees were about $5K for a fairly simple asset acquisition using a mid-sized law firm, and about $40K for a more complicated transaction using a "high profile" firm.

Have the buyer start with an LOI to make sure you two agree in principle to the terms and conditions, and then let his lawyers hammer out the purchase agreement and have it reviewed by your lawyer.

PM me if you want the names of firms I've used (both national firms, and I think they both have a presence in the Bay Area).

 

[justin]

Look for mid-size or larger firms. I think you said before you're located in rural CA, so you may have to shop at the nearby Big City law firm. It may cost more than a local general practitioner, but you'll get an expert in business law that could save you a lot of trouble and headaches (and liability) down the road. If you have a specialized/unique business (not a muffler shop/pizza parlor/bike shop) with lots of complicated issues (environmental liability, intellectual property, patents, trade secrets, franchise agreements, etc) you might want to make sure either your attorney has experience in that area, or that someone at their firm does and that that specialized attorney will be reviewing the appropriate parts of the transaction.

For a really simple sale of something that is mostly assets, you may be able to get by on the cheap with a local/cheap attorney. In the end, you get what you pay for.

 

[Martha]

If it were me, I'd let the buyer do it. The agreement can get pretty complex and expensive.

One of the reasons I like to do the agreement rather than review an agreement someone else did is that it actually can be more work for me and more time consuming if I have to review what someone else did, think about whether they included everything I would want, and then subtract everything I don't want. It is amazing how time consuming that can be.

 

[REWahoo]

One of the reasons I like to do the agreement rather than review an agreement someone else did is that it actually can be more work for me and more time consuming if I have to review what someone else did, think about whether they included everything I would want, and then subtract everything I don't want. It is amazing how time consuming that can be.

Having spent the last 15 years of my business career working with legal counsel to draft and review contracts, I couldn't agree more.

REW

 

[justin]

One of the reasons I like to do the agreement rather than review an agreement someone else did is that it actually can be more work for me and more time consuming if I have to review what someone else did, think about whether they included everything I would want, and then subtract everything I don't want. It is amazing how time consuming that can be.

I also like to draft agreements myself first, because that sets the baseline from which you begin the negotiating process for the smaller details.

 

[wabmester]

I also like to draft agreements myself first, because that sets the baseline from which you begin the negotiating process for the smaller details.

I should defer to all the jurists here, but in my experience, the 1-page LOI establishes the baseline, and the book-length purchase agreement is something that only a lawyer could love.

I assume all T-Bone really cares about is 1) price, 2) the list of assets, and 3) total freedom from all liabilities and responsibilities starting with the purchase date.

Frankly, I don't understand why the LOI, a check, and a handshake isn't good enough. But that's why I'm not a lawyer.

 

[justin]

quote:

I assume all T-Bone really cares about is 1) price, 2) the list of assets, and 3) total freedom from all liabilities and responsibilities starting with the purchase date.

Sometimes the buyer wants warranties and assurances, non-compete agreements, trade secret protection, a certain amount held in escrow, the seller to take back a note for a portion of the purchase price, etc.

It can be 1-2-3 like you've listed it above. Just depends on the business. The last time I sold a business it was all assets. I gave someone all my assets and an invoice. They mailed me a check later.

 

[Martha]

I skip the letter of intent unless it is a really big deal. Why do the same work twice? Just present the proposed purchase agreement.

 

[nwsteve]

One of the reasons I like to do the agreement rather than review an agreement someone else did is

Jurisprudence aside, a business reason for doing the agreement yourself first (especially if guided by an experienced practioner) is it tends to help you focus on just what you are selling, how you want paid, reflection on possible negotiation issues and your desired outcome.  Otherwise you are in a reactive mode.  Alex Karras, a well known instructor in negotiation, recommended always being the one who shapes the starting point.  As seller, you get the advantage of being able to "frame" all the value points and constraints.
nwsteve

 

[wabmester]

I skip the letter of intent unless it is a really big deal.  Why do the same work twice?  Just present the proposed purchase agreement.

As a buyer, I want a binding LOI to give me a lock on negotiations for as long as it takes to complete DD and hammer out the purchase agreement.    As a seller, I want an non-binding LOI with enough wiggle room to give me leverage when I try to line up competing bids.   

 

[dory36]

In a past life as a business broker, I saw lots of these. Exactly one stock sale (needed to continue a lease), the rest were asset sales.

Buyer and seller agreed using a preprinted binding offer form; find one in a book on buying/selling a business if you don't have a friendly business broker who will give you one. (I can email you one when I get back home, but that will be 2 weeks.)

THEN, in perhaps 75% of the cases, buyer and seller went to a single attorney (that we had recommended) and had him draw up an agreement that implemented the intent of the agreement we had already reached. Buyer and seller split the cost of this. Both parties could take that to their attorneys for review (few did though).

This kept legal costs low, because otherwise, the attorney puts together an agreement biased towards his client (as he should), and there are multiple back-and-forths in what amounts to a whole new set of negotiations.

Average legal cost when we used a single attorney: Under $1000 per party. The costs probably averaged 10x that amount (and we saw some $25-35k legal bills) when competing attorneys drew up the agreements, and I doubt the results were any better.

Something like this was in most of the agreements...

You are selling the assets, and warrant only that you have the right to do so.

You have made available necessary books and records which reasonably represent your operation of the business.

Buyer has conducted necessary and sufficient due diligence to satisfy himself as to the suitability of everything, and won't come back tomorrow and tell you he never knew he had to pay the rent.

 

[kat]

I second a lot of what has been said already. But if your accountant recommends a small law firm, go with it. Our society has a bias toward the big. I know from my brother's small (4 lawyers) law firm and my cousins' small (three lawyers) law firm that both are just as capable as the big firms in handling business transactions. Many days that's all my brother does, for the many businesses he represents. Business law, contracts and tax are his specialties. So if your accountant recommends the small guy, go ahead. I bet it costs less too.

 

[TromboneAl]

Great information, guys, thanks!

My biggest concern is that the deal go through -- that is, that the buyer doesn't change his mind. So, I was thinking that if he draws up the initial agreement, he'll have more invested in the deal, and be less likely to walk away. But I like Dory's suggestion, too.

Is there any disadvantage to using an attorney that is totally out of the area (that is, that I never meet with face-to-face)?

 

[Martha]

Great information, guys, thanks!

My biggest concern is that the deal go through -- that is, that the buyer doesn't change his mind. So, I was thinking that if he draws up the initial agreement, he'll have more invested in the deal, and be less likely to walk away. But I like Dory's suggestion, too.

I would only worry that his lawyer comes up with something your lawyer doesn't like at all. If you have your buyer do a LOI or as Dory suggests, fill out an offer form, try to keep it non binding OR have your lawyer look at it before you sign. As soon as it is binding it restricts what you can do in the purchase agreement. You don't want your lawyer to say: You agreed to what?!

Is there any disadvantage to using an attorney that is totally out of the area (that is, that I never meet with face-to-face)?

Little experience with this. I have had a few clients I have never seen in person. With email and all, it doesn't seem to matter.

 

[SteveL]

One of my good friends is involved in a difficult struggle over the sale of his business several years ago. My friend carried part of the purchase price via a loan, (as is not uncommon) and despite a 7 figure down payment, the buyer has run the business down(pulling funds out to pay for a sleeze dance place) and now my friend is struggling every month to get this weasel to pay....My friend had a very good atty, and may have had a good contract, but because the buyer hasn't acted with good faith in compliance with the terms, it has been a very big problem.

 

[TromboneAl]

Well, the guy is no longer interested in purchasing the company.

Too bad, since it whetted my appetite for complete retirement. So, I guess I better start looking around for buyers.

 

[REWahoo]

Well, the guy is no longer interested in purchasing the company.

Sorry, Al. Know that must be a real disappointment. But if there was one sucker prospective buyer, there will be others.

REW

 

[Nords]

Well, the guy is no longer interested in purchasing the company.   

He's probably been reading our posts!

 

[sgeeeee]

Well, the guy is no longer interested in purchasing the company.   

Too bad, since it whetted my appetite for complete retirement.  So, I guess I better start looking around for buyers.

Maybe you can auction it off on eBay.

 

[MJ]

How bout a sale lottery? All you need is a thousand pre-ER people putting in $1k. The sale of your company would net you $1 mil less lottery expenses. Would $950k sufficiently launch your ER?

 

[Mr._johngalt]

Look for mid-size or larger firms.  I think you said before you're located in rural CA, so you may have to shop at the nearby Big City law firm.  It may cost more than a local general practitioner, but you'll get an expert in business law that could save you a lot of trouble and headaches (and liability) down the road.  If you have a specialized/unique business (not a muffler shop/pizza parlor/bike shop) with lots of complicated issues (environmental liability, intellectual property, patents, trade secrets, franchise agreements, etc) you might want to make sure either your attorney has experience in that area, or that someone at their firm does and that that specialized attorney will be reviewing the appropriate parts of the transaction.

For a really simple sale of something that is mostly assets, you may be able to get by on the cheap with a local/cheap attorney.  In the end, you get what you pay for.

I don't agree with this at all. I have done several smallish deals.
Even so, it can cost a fortune. I like to let the other party draw up
whatever they want (after the LOI) and then I tweak it. When I was doing this stuff I mostly used small and/or one attorney firms. Never a problem
but I knew these people very well and had used them for years. If you
have to go out and find someone, ..................now that's a horse of a different color.

JG

 

[justin]

I don't agree with this at all. I have done several smallish deals.
Even so, it can cost a fortune. I like to let the other party draw up
whatever they want (after the LOI) and then I tweak it. When I was doing this stuff I mostly used small and/or one attorney firms. Never a problem
but I knew these people very well and had used them for years. If you
have to go out and find someone, ..................now that's a horse of a different color.

JG

I agree with what you said. If you know an experienced, high quality attorney that you can retain for a low price, do it and save money.

 

[Martha]

How do people know if their lawyer is high quality unless they know the law themselves or have a point of comparison? I know one lawyer in my town who is well loved by an assortment of clients. He is a goof ball and doesn't do the best job. Sure is cheap though.

We just shopped for a new dentist when our old one retired. I'm still not sure whether he is good.

Then again, I really like my doctor. She spends time with you answering all you questions and just chatting. But really, how do I know if she is any good?