Drafting Proper Purchase Agreements
There are three basic types of purchase agreements related to 90%+ of business acquisitions.
- Real Estate Purchase Agreement
- Asset Purchase Agreement
- Stock Purchase Agreement
Obviously, a real estate purchase agreement is just relating to the real estate or land that is being acquired, which is a separate transaction.
This will involve 1 or 2 realtors on the deal, a real estate attorney, title company, etc.
If there are just digital assets being sold or a company without real estate, then it usually falls within an asset purchase agreement or a stock purchase agreement.
An asset purchase agreement relates to buying assets from a company, without buying the actually company itself. This is good if you are not looking to take over the entity itself or if there are other assets owned by that parent company you do not want. This asset purchase agreement should reduce your liabilities and indemnify you from anything that took place prior or after to the takeover including liabilities and costs. If you are a buyer you don’t want to inherit anything negative unless you are benefitting from things that are difficult to separate from the potential negative. If you are a seller you want to reduce your liabilit.
A stock purchase agreement relates to you buying an actual company itself. Everything that the company owns will be yours. The entity can be an asset or liability. If they have lots of assets that is a bonus, but it can be good to leverage tax returns and the existing lines of credit to access capital, although this isn’t really recommended for many folks because this is not something you want to take on if it is bad debt you are accumulating and eventually there will have to be guarantors not part of the existing business.
The more that is spelled out without attorneys going back and forth on terms and complicating simple matters, the better it is because then it is clear.
But just because an agreement is spelled out.
Practically speaking it doesn’t always play out that way. And you can go overkill on the agreement, when what will actually ensue will be different. You don’t want a suit over things. So relying on legal isn’t your best play.
It really depends on how much you value your time and money and angst. How much do you want to spend on drafting an agreement because thats not what necessarily protects you, but a good clear, concise agreement will most definitely help understand terms.
Two things you want to protect yourself from:
- An attorney overcomplicating the deal and potentially compromising it by trying to protect you legally, but not looking at it practically – overcomplicating simple matters by adding in clauses you don’t need or agree to with the seller or buyer, or that are just not necessary to get a deal done without problems
- An attorney making sure you are protected from the material, major items and if that can’t happen , ask yourself is it the deal itself, or the attorney not really savvy and sharp on the matters. The goal is to get the deal through the finish line
An agreement is a highly important part of this process, but there are things to account for in transition that go beyond an agreement that you will want to navigate clearly. Set your boundaries, and many choices come down to if you rather save time and come out of pocket more, or pay less and eat up more of your time.
If you want help understanding the acquisition process and protecting yourself whilst getting a deal done please contact us:
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Leader in Acquisitions with Expertise in Representing Sellers & Buyers on Deals
Jarbly is a leader in acquisitions with expertise in helping with listings, negotiations, LOI's, asset purchases, company purchases, and real estate purchases. JARBLY has access to high net worth individuals if you are on the sell-side and businesses that may be of interest to you if you are on the buy-side.
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