Legal Issues Regarding Business Transitions

In addition to financial issues and considerations, there are numerous legal issues involved in a transition. An attorney experienced in the nuances of business transitions should always assist the buyer in the following issues:
What is being purchased
• The physical location
• The goodwill of the location (including the client base)
– How the seller transfers goodwill to the buyer
– The terms and conditions of the seller’s non-competition and non-solicitation agreement after he/ she leaves
– Whether the current owner will stay on to help the business transition into new ownership
– Receivables
– Whether the seller is selling stock in the entity owning the business or the assets of the business

Location
• Lease agreements
– Basic terms of the lease
– Duration of the lease
– Options to renew the lease
– Renewal terms
• First Right of Refusal to purchase the real estate

Restrictive covenants
• The seller’s non-competition agreements  and non-solicitation agreements, which prohibit former employees, partners, or owners of the business from competing with the new business

Liabilities
• Lien searches on the business’s assets

Tax consequences
• Tax consequences of the transaction
• How much tax the seller will be required to pay as a result of the sale (personal or corporate Goodwill)