Why use a lawyer?

The purchase or sale of a business is a complex transaction involving various parties, and usually a substantial amount of money. Using a lawyer increases the likelihood that the transaction will be concluded successfully in the manner envisioned by the buyer and the seller. Doing it right pre-empts later issues which the self-represented parties just did not consider.

Basic Services

  • Preliminary advice on important initial up-front choices
  • Letters of Intent
  • Asset and share purchase agreements
  • Closing documents
  • Vendor, purchaser, landlord, lender interaction

Additional Services

  • Independent Legal Advice
  • Legal advice on asset and share purchase and sale transactions
  • Manage closing process
  • Deal closing and related matters
  • Leases and tenant-related arrangements
  • Deal with lender and funding matters
  • General advice on structuring of the transaction

Frequently Asked Questions

Business Purchase and Sale

Independent Legal Advice (“ILA”) refers to legal advice given by a lawyer who is not involved in the transaction with the client. ILA is usually required by lenders and other sophisticated parties who want to ensure that their clients are fully informed of the content and consequences of a transaction. ILA should be obtained by any person who is self represented and who is involved in a transaction where all, or some, of the parties are represented by the same lawyer.

This question must always be considered, and a decision should be made after consultation with your lawyer and accountant. There is an adage that states that purchasers’ prefer to buy assets and vendors’ prefer to sell shares. To see how this applies to your transaction, speak to our commercial lawyers.

At a certain stage the purchaser and vendor want to start formalizing the terms of the agreement. Usually, all of the terms of the agreement are not known up front, but the parties want something on paper. This usually happens by the parties agreeing to the material terms of the transaction and the purchaser delivering a letter of intent to the vendor.

The Purchase Agreement documents the final terms of the agreement between the seller (vendor) and the buyer (purchaser). After signature by both parties, it is binding and the terms thereof can only be changed by written agreement of the parties.

By the day of closing, the purchaser’s solicitor will have informed the vendor’s solicitor that the funds are available, the parties will have exchanged the closing documents, and all the parties will be ready to close. On the Closing Date, the lawyers will agree that the transaction has closed, the funds will be requested (if a lender is involved) and paid over, and any other undertakings will be honoured. When everything is done, the vendor and purchaser will be informed that the transaction is finalized and the purchaser will take control of the business.

If the business is in a premises, the property is either owned by the vendor or it is leased. If it is leased, there will be a landlord and the lease will have to be either assigned or renewed. Either way, the landlord will have to be informed of the transaction and will be involved. Not informing the landlord can have dire consequences, even cancellation and eviction of the purchaser.

A lender is involved when the purchase price, or a portion thereof, is being financed. The lender will have its own requirements and documents and will be represented by a lawyer. During the closing process, the lender confirms that the funds are available. On the closing date, the lender supplies the funds to the purchaser’s solicitor, who pays it over to the vendor’s solicitor.

Independent Legal Advice must be obtained as early as possible, even before any formal legal steps are started.

The Letter of Intent deals with the following:

  • Purchase Price and how it is going to be paid
  • What is being purchased
  • What will happen form the offer, to the signing of the Letter of Intent, to the Date of Closing, and thereafter
  • Arrangements in relation to the take-over of the business, i.e. employees, equipment, inventory, etc.
  • The closing date
  • Agreement in Principal
  • Preliminary Deal

No, a Letter of Intent is not binding. It simply states the intent of the parties and supplies a guideline for the lawyer to prepare the Purchase Agreement.

Realistically, nothing. The Letter of Intent, although it it creates a moral obligation, creates no legal obligation.

A transaction can of course proceed without a Letter of Intent. The terms of the agreement between the parties are usually reflected directly in the Purchase Agreement. This practice does however lead to changes being made to the Purchase Agreement than would normally have been negotiated and agreed at the Letter of Intent stage.

The parties can prepare a Letter of Intent themselves or get the assistance or guidance of a lawyer. Time and money is spent in negotiations and making changes to the transaction on an ongoing basis. There is a cost saving when this is done before lawyers get involved as  making changes to the Purchase Agreement as part of negotiations can become costly.

The Purchase Agreement usually deals with the following:

  • Specific definitions and terms associated with the transaction
  • The parties
  • The purchase price and payment terms
  • Whether it is a share or asset purchase agreement
  • Deposits, hold-backs and right of set-off
  • Escrow arrangements
  • Vendor and purchaser representations and warranties
  • Vendor and Purchaser covenants
  • Vendor’s and purchaser’s conditions of closing
  • Closing date, time and place
  • Closing documents required from both parties
  • Non-dompetition and restrictive covenant arrangements
  • Any further terms applicable to the transaction

Yes, it is.

When there is a Purchase Agreement in place, it is binding on the parties. When one party backs out, there are usually terms that allow the other party to enforce their rights. The agreement usually contains the remedies of the aggrieved party (contractual remedies) or they can rely on the common law or the law of equity. Whatever the case may be, the agreement is in writing and the terms thereof are fixed.

If there is no Purchase Agreement, there is no written record of the agreement between the parties. This does not mean the oral agreement is not binding or enforceable, but the exact terms thereof will be very difficult to prove. A Purchase Agreement is essential when purchasing or selling a business.

Closing documents give effect to the instructions of the parties in the purchase agreement. Not all the terms of the agreement are final at the time when the purchase agreement is signed; closing documents ensure that the agreed terms are in place and adhered to at the time of closing.

If a transaction does not close, the money in trust is returned to the purchaser. The parties’ rights are based on the purchase agreement, and if they want to pursue their remedies, they will rely on the purchase agreement.

Closing documents are signed in anticipation of the closing and supplied to the other party on the undertaking not to use the documents, or to supply it to the client, if the transaction does not close. If the transaction does not close, the documents are returned. The parties are not bound by the closing documents and the parties will have to rely on the purchase agreement.

Closing

Independent Legal Advice (“ILA”) refers to legal advice given by a lawyer who is not involved in the transaction with the client. ILA is usually required by lenders and other sophisticated parties who want to ensure that their clients are fully informed of the content and consequences of a transaction. ILA should be obtained by any person who is self represented and who is involved in a transaction where all, or some, of the parties are represented by the same lawyer.

By the day of closing, the purchaser’s solicitor will have informed the vendor’s solicitor that the funds are available, the parties will have exchanged the closing documents, and all the parties will be ready to close. On the Closing Date, the lawyers will agree that the transaction has closed, the funds will be requested (if a lender is involved) and paid over, and any other undertakings will be honoured. When everything is done, the vendor and purchaser will be informed that the transaction is finalized and the purchaser will take control of the business.

If the business is in a premises, the property is either owned by the vendor or it is leased. If it is leased, there will be a landlord and the lease will have to be either assigned or renewed. Either way, the landlord will have to be informed of the transaction and will be involved. Not informing the landlord can have dire consequences, even cancellation and eviction of the purchaser.

A lender is involved when the purchase price, or a portion thereof, is being financed. The lender will have its own requirements and documents and will be represented by a lawyer. During the closing process, the lender confirms that the funds are available. On the closing date, the lender supplies the funds to the purchaser’s solicitor, who pays it over to the vendor’s solicitor.

Independent Legal Advice must be obtained as early as possible, even before any formal legal steps are started.

Closing documents give effect to the instructions of the parties in the purchase agreement. Not all the terms of the agreement are final at the time when the purchase agreement is signed; closing documents ensure that the agreed terms are in place and adhered to at the time of closing.

If a transaction does not close, the money in trust is returned to the purchaser. The parties’ rights are based on the purchase agreement, and if they want to pursue their remedies, they will rely on the purchase agreement.

Closing documents are signed in anticipation of the closing and supplied to the other party on the undertaking not to use the documents, or to supply it to the client, if the transaction does not close. If the transaction does not close, the documents are returned. The parties are not bound by the closing documents and the parties will have to rely on the purchase agreement.

Letter of Intent

Independent Legal Advice (“ILA”) refers to legal advice given by a lawyer who is not involved in the transaction with the client. ILA is usually required by lenders and other sophisticated parties who want to ensure that their clients are fully informed of the content and consequences of a transaction. ILA should be obtained by any person who is self represented and who is involved in a transaction where all, or some, of the parties are represented by the same lawyer.

At a certain stage the purchaser and vendor want to start formalizing the terms of the agreement. Usually, all of the terms of the agreement are not known up front, but the parties want something on paper. This usually happens by the parties agreeing to the material terms of the transaction and the purchaser delivering a letter of intent to the vendor.

Independent Legal Advice must be obtained as early as possible, even before any formal legal steps are started.

The Letter of Intent deals with the following:

  • Purchase Price and how it is going to be paid
  • What is being purchased
  • What will happen form the offer, to the signing of the Letter of Intent, to the Date of Closing, and thereafter
  • Arrangements in relation to the take-over of the business, i.e. employees, equipment, inventory, etc.
  • The closing date
  • Agreement in Principal
  • Preliminary Deal

No, a Letter of Intent is not binding. It simply states the intent of the parties and supplies a guideline for the lawyer to prepare the Purchase Agreement.

Realistically, nothing. The Letter of Intent, although it it creates a moral obligation, creates no legal obligation.

A transaction can of course proceed without a Letter of Intent. The terms of the agreement between the parties are usually reflected directly in the Purchase Agreement. This practice does however lead to changes being made to the Purchase Agreement than would normally have been negotiated and agreed at the Letter of Intent stage.

The parties can prepare a Letter of Intent themselves or get the assistance or guidance of a lawyer. Time and money is spent in negotiations and making changes to the transaction on an ongoing basis. There is a cost saving when this is done before lawyers get involved as  making changes to the Purchase Agreement as part of negotiations can become costly.

Purchase Agreements

Independent Legal Advice (“ILA”) refers to legal advice given by a lawyer who is not involved in the transaction with the client. ILA is usually required by lenders and other sophisticated parties who want to ensure that their clients are fully informed of the content and consequences of a transaction. ILA should be obtained by any person who is self represented and who is involved in a transaction where all, or some, of the parties are represented by the same lawyer.

The Purchase Agreement documents the final terms of the agreement between the seller (vendor) and the buyer (purchaser). After signature by both parties, it is binding and the terms thereof can only be changed by written agreement of the parties.

Independent Legal Advice must be obtained as early as possible, even before any formal legal steps are started.

The Purchase Agreement usually deals with the following:

  • Specific definitions and terms associated with the transaction
  • The parties
  • The purchase price and payment terms
  • Whether it is a share or asset purchase agreement
  • Deposits, hold-backs and right of set-off
  • Escrow arrangements
  • Vendor and purchaser representations and warranties
  • Vendor and Purchaser covenants
  • Vendor’s and purchaser’s conditions of closing
  • Closing date, time and place
  • Closing documents required from both parties
  • Non-dompetition and restrictive covenant arrangements
  • Any further terms applicable to the transaction

Yes, it is.

When there is a Purchase Agreement in place, it is binding on the parties. When one party backs out, there are usually terms that allow the other party to enforce their rights. The agreement usually contains the remedies of the aggrieved party (contractual remedies) or they can rely on the common law or the law of equity. Whatever the case may be, the agreement is in writing and the terms thereof are fixed.

If there is no Purchase Agreement, there is no written record of the agreement between the parties. This does not mean the oral agreement is not binding or enforceable, but the exact terms thereof will be very difficult to prove. A Purchase Agreement is essential when purchasing or selling a business.