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Buying a Business in San Diego

Buying a Business Begins With Understanding What You Are Actually Buying

Reviewing acquisition documents before buying a business

Opportunity

I have found a business I may want to acquire.

You see something worth pursuing. It may be the company's revenue, customers, contracts, market position, employees, intellectual property, equipment, location, goodwill, growth potential—or a combination of these things. The opportunity is not simply to complete a transaction. It is to acquire something capable of producing the value you believe is there.

Uncertainty

Is the business actually what I think it is?

Financial statements and projections can tell you part of the story. They may not tell you whether important customers are likely to remain, whether key contracts can continue after the acquisition, whether intellectual property is properly owned, whether employees are essential to the value you are buying, or whether problems exist that have not yet appeared in the numbers.

Decision

What am I really buying, what comes with it, and how should the transaction be structured to accomplish what I intend?

Buying the company itself is not necessarily the same as buying selected assets of the business. What transfers, what remains behind, what requires consent, what liabilities may follow, and how the purchase is structured can materially affect what you actually own after closing.

Consequence

What happens if I discover after closing that the customers, contracts, revenue, intellectual property, employees, licenses, goodwill—or liabilities—do not behave the way I expected?

By then, the purchase price may have been paid, control transferred, financing obligations incurred, employees notified, and the former owner moved on. Protections negotiated before closing may determine what options remain if an important assumption about the business proves wrong.

A successful business acquisition is not simply one that closes. It is one that gives you the business and value you intended to acquire without exposing you to consequences you did not intend to assume.

Where Are You in the Process?

Buying a business rarely moves in a perfectly straight line. You may have just identified an opportunity, already be reviewing the business and what makes it valuable, have concerns about what you could be taking on, or be negotiating the terms of the acquisition.

Business professional evaluating a potential business acquisition in San Diego

You Have Found a Business You May Want to Buy

The opportunity looks promising, but you are still determining whether the business is actually what you believe it to be.

  • The company has customers, revenue, market position, assets, intellectual property, employees, contracts, goodwill, or other qualities that make the acquisition attractive.
  • You have received financial statements, projections, tax returns, operating information, or other materials from the seller.
  • The purchase price may be based on assumptions about future revenue, profitability, growth, customer retention, or other expected performance.
  • Some of what makes the business attractive may depend on relationships, people, agreements, or circumstances that could change after the sale.
  • You do not yet know whether the information you have received tells you everything you need to know about the business.

Learn More →

Business professional considering the operations and value of a company

You Know What Makes the Business Valuable to You

You have identified what you want from the acquisition, but you need to know whether that value will actually be there after closing.

  • Important customers or sources of recurring revenue may account for a significant part of the company's value.
  • Key employees, managers, founders, salespeople, or other individuals may be important to continued operations.
  • Contracts, leases, licenses, permits, intellectual property, technology, supplier relationships, or other rights may be important to the business you intend to operate.
  • The company's name, reputation, location, market position, proprietary information, or goodwill may be part of what you believe you are purchasing.
  • The value you see may depend upon assets, rights, relationships, or people that do not necessarily transfer or continue simply because the business is sold.

Learn More →

Executive reviewing business acquisition documents and financial information

You Are Concerned About What May Come With the Business

You want the value of the business, but you do not want to discover after closing that you also acquired problems you did not anticipate.

  • The company may have existing debt, contractual obligations, guarantees, liens, unpaid taxes, or other financial commitments.
  • Employees or former employees may have claims, compensation issues, benefit obligations, classification problems, or other unresolved matters.
  • Existing or threatened litigation, customer disputes, regulatory concerns, or compliance problems may affect the business.
  • Important contracts may contain assignment, consent, termination, default, or change-of-control provisions.
  • There may be liabilities or obligations that are not obvious from the company's financial statements or the information initially provided by the seller.

Learn More →

Business executives discussing the terms of a potential acquisition

You Are Being Asked to Move the Acquisition Forward

Discussions have progressed beyond initial interest, and decisions you make now may begin defining the transaction you ultimately close.

  • You may have received or be negotiating a letter of intent, term sheet, exclusivity agreement, confidentiality agreement, or proposed purchase agreement.
  • The parties may be discussing whether the transaction will involve the purchase of assets, stock, membership interests, or another acquisition structure.
  • The seller may be asking you to agree on price, payment terms, financing, an earnout, seller financing, rollover equity, or other material economic terms.
  • You may be asked to accept deadlines, exclusivity, deposits, contingencies, due-diligence limitations, or other restrictions as negotiations advance.
  • Important assumptions about what is being purchased, what the seller will retain, what liabilities may be assumed, and what must happen before closing may not yet be fully resolved.

Learn More →

Business professional evaluating a potential business acquisition in San Diego

Determine Whether the Opportunity Is What You Believe It Is

Finding a business you want to acquire is the beginning of the evaluation, not the end of it. The revenue, customers, market position, employees, intellectual property, equipment, location, goodwill, or growth potential that attracted you to the business may be real. The question is whether those sources of value can be verified and whether they are likely to remain with the business after you acquire it.

That requires looking beyond the purchase price and the seller's description of the company. Financial information can help establish how the business has performed, but the value of an acquisition may also depend on customer concentration, contractual relationships, key employees, ownership of intellectual property, licenses, leases, supplier relationships, pending obligations, and assumptions about future performance.

The objective is not to find reasons to reject a good opportunity. It is to determine what makes the opportunity good and whether the transaction can preserve the value you are buying.

That distinction matters before the transaction progresses. The further you move toward an acquisition based upon assumptions that have not been tested, the more difficult or expensive it may become to change the deal when additional information emerges.

The Next Action Step:

Identify what specifically makes this business worth acquiring to you. Those sources of value should become part of the investigation of the company and the transaction rather than assumptions that remain untested until after closing.

Before becoming substantially committed, determine what information you need from the seller, what should be independently verified, and which assumptions about the business are important enough that they should influence due diligence, negotiation, transaction structure, and the acquisition agreement.

We invite you to access our chat module, Schedule Your Complimentary Assessment or call (858) 535-1511 to discuss the business you are considering, where you are in the acquisition process, and the questions that should be addressed before you move forward.

You May Also Be Interested In:

Why Due Diligence Is Crucial in Any Merger or Acquisition →

Can You Use an Asset Purchase to Buy an Existing Business? →

Purchase and Sale Transactions →

Mergers & Acquisitions →

Business professional considering the operating value of a company

Make Sure the Value You Are Buying Can Actually Be Acquired

A business can have substantial value without every source of that value automatically transferring to a buyer.

A major customer may have the right to terminate its contract. A lease may require the landlord's consent. A license or permit may depend upon the existing owner or entity. Intellectual property may not be owned as clearly as expected. Key employees may have no obligation to remain. Supplier arrangements may change. A founder's personal relationships may account for more of the company's goodwill than the financial statements reveal.

That is why identifying what makes the business valuable is only part of the analysis. The acquisition must also be structured and documented so that the buyer receives the assets, rights, relationships, and protections necessary to preserve that value wherever reasonably possible.

The question is not simply what the business is worth before the sale. It is whether what makes the business valuable will still belong to, remain with, or benefit you after the transaction closes.

That question can affect due diligence, valuation, closing conditions, required consents, representations and warranties, transition arrangements, employment agreements, restrictive covenants, purchase-price terms, and ultimately whether the acquisition makes sense on the terms being proposed.

The Next Action Step:

Make a practical inventory of the things you believe you are paying for—not merely the company's physical assets. Include important contracts, customers, recurring revenue, employees, intellectual property, licenses, leases, relationships, goodwill, proprietary information, and anything else that materially influenced your decision to pursue the business.

Then determine what must occur for those sources of value to survive the transaction. Some may transfer automatically. Others may require assignments, consents, new agreements, continued participation by particular people, or specific protections in the acquisition documents.

We invite you to access our chat module, Schedule Your Complimentary Assessment or call (858) 535-1511 to discuss what you are trying to acquire and how the transaction can be structured around the value you intend to receive.

You May Also Be Interested In:

Asset Purchase Agreement or APA Contracts →

Elements of a Proven Asset Purchase Agreement →

Acquiring a Company Through a Stock Purchase →

What Is a Membership Interest Purchase Agreement or MIPA? →

Executive reviewing acquisition documents and potential business liabilities

Understand What You May Be Taking On Before You Acquire It

Acquiring a successful business does not mean acquiring only the parts of the company that produce revenue and value. Depending upon the transaction and how it is structured, existing obligations, contractual commitments, employee issues, tax exposure, litigation, regulatory concerns, liens, claims, or other liabilities may affect what the buyer receives or assumes.

An asset purchase may allow a buyer to identify particular assets being acquired and liabilities being assumed. A stock or membership-interest acquisition generally involves acquiring ownership of the entity that already carries its history, rights, obligations, and potential exposure. But those descriptions alone do not answer every liability question.

Even an asset acquisition should not be approached on the assumption that unwanted liabilities simply disappear. The nature of the obligation, the transaction, applicable law, contractual provisions, and the parties' conduct can matter.

The structure of the acquisition can change the risk, but transaction structure is not a substitute for finding the risk before you buy the business.

Due diligence and transaction documentation therefore work together. One helps identify what exists. The other helps establish what is being acquired, what is being assumed, what remains with the seller, what the seller is representing about the business, and what protections may exist if those representations prove inaccurate.

The Next Action Step:

Do not limit the investigation to whether the company's revenue and financial performance justify the purchase price. Identify the obligations and potential exposure that could materially change the economics or operation of the business after closing.

That can include reviewing contracts, debt, liens, taxes, employment matters, litigation and threatened claims, regulatory issues, ownership of important assets and intellectual property, leases, licenses, and other obligations relevant to the particular company.

We invite you to access our chat module, Schedule Your Complimentary Assessment or call (858) 535-1511 to discuss the acquisition, the liabilities or obligations that concern you, and how those issues may affect due diligence, transaction structure, and the protections negotiated before closing.

You May Also Be Interested In:

Successor Liability in an Asset Purchase or Stock Purchase in California →

The Potential Risks of an Asset Purchase Agreement →

Why Due Diligence Is Crucial in Any Merger or Acquisition →

Asset Purchase or Stock Purchase: Which Is Best? →

Business executives discussing the structure and terms of an acquisition

Understand the Transaction Before the Terms Begin Controlling It

There is a point in an acquisition when an interesting opportunity begins becoming an actual transaction.

A letter of intent, term sheet, exclusivity agreement, proposed purchase agreement, deposit, financing commitment, or other preliminary document can move the parties from discussing possibilities toward defining the deal. Price may receive most of the attention, but price is only one of the terms that determines what the buyer ultimately receives and what must happen before the transaction closes.

The parties may also be defining whether assets or ownership interests will be purchased, which liabilities will be assumed, how working capital will be addressed, whether part of the price depends upon future performance, what the seller must do during a transition, what due diligence remains available, what representations will be made, and under what circumstances either party can walk away.

The earlier important transaction terms are defined, the more important it becomes to understand their consequences before treating them as settled.

Even provisions described as nonbinding can influence negotiations, expectations, leverage, timing, exclusivity, confidentiality, diligence, and the definitive agreement that follows. The objective is not to make every preliminary document unnecessarily complicated. It is to avoid casually agreeing to an important business term and discovering later that changing it has become difficult.

The Next Action Step:

Before signing or substantially advancing an LOI, term sheet, purchase agreement, or other material acquisition document, identify which terms are binding, which remain subject to negotiation, what assumptions the proposed terms make about the business, and what still must be established through due diligence.

This is also the point to determine whether the proposed acquisition structure actually fits what you intend to buy. An asset purchase, stock purchase, or membership-interest purchase can produce materially different consequences concerning ownership, liabilities, contracts, continuity, tax considerations, and documentation.

We invite you to access our chat module, Schedule Your Complimentary Assessment or call (858) 535-1511 to discuss the proposed transaction, the documents or terms already presented, and the decisions that should be evaluated before you become more substantially committed.

You May Also Be Interested In:

Asset Purchase or Stock Purchase: Which Is Best? →

What Is the Difference Between a MIPA and an APA in a Business Transaction? →

Elements of a Proven Asset Purchase Agreement →

Buying or Selling a Business With a Stock Purchase in San Diego →

Which Is Better, a MIPA or an APA? →

Hourglass representing the importance of acting before a business acquisition closes

THE MOST IMPORTANT THING YOU NEED TO KNOW RIGHT NOW

The greatest risk you face—and the strongest opportunity to accomplish what you intend—is not after you buy the business. It is right now, while you can still investigate the company, question assumptions, negotiate terms, choose how the acquisition will be structured, and decide what you are and are not willing to take on.

Once the transaction closes, many of those decisions become facts.

Before that happens, you may still be able to determine whether important customers are likely to remain, whether contracts can be assigned or continued, whether the seller actually owns the intellectual property you expect to receive, whether licenses or permits will remain effective, whether key employees are likely to stay, and whether liabilities or obligations exist that could materially change the value of the acquisition.

You may also be receiving information, negotiating an LOI, discussing price or financing, responding to proposed terms, or being asked to make decisions before the investigation of the business is complete.

We invite you to access our chat module, Schedule Your Complimentary Assessment or call (858) 535-1511 to discuss the business you are considering, where you are in the acquisition process, and the questions that should be addressed before you move forward.

The opportunity right now is to determine what you are actually buying, what you may be taking on with it, and whether the transaction can be structured to give you the business you intend to own after closing.

This Is Why You Need to Speak With an Experienced San Diego Business Acquisition Attorney

An experienced business acquisition attorney can help you identify the legal and transactional questions that should be answered before your options become more limited.

That may include determining what information should be requested and reviewed; identifying contracts, ownership rights, liabilities, licenses, employment issues, intellectual property, or other matters requiring closer examination; evaluating the proposed acquisition structure; and understanding what should be addressed in the LOI, purchase agreement, disclosure schedules, closing conditions, or other transaction documents.

Counsel can also help you distinguish between a question that needs to be answered before you proceed and an issue that can appropriately be addressed through negotiation or documentation.

You do not need to know every problem before speaking with an attorney. One purpose of legal due diligence and transaction counsel is to help determine which questions need answers before you become committed to the deal.

BUYING A BUSINESS IN SAN DIEGO

Crucial Areas of Focus When Buying a Business in San Diego

01 THE ECONOMICS
Financial documents being scrutinized before a business acquisition

Do Not Let the Purchase Price Become the Entire Transaction

Price matters. But a favorable purchase price does not necessarily make a favorable acquisition.

The economics can change materially if an important customer leaves, a valuable contract cannot be transferred, necessary intellectual property is not properly owned, a key employee departs, required consent cannot be obtained, or an obligation emerges that was not reflected in the seller's presentation of the business.

Payment terms matter as well. Seller financing, earnouts, holdbacks, working-capital adjustments, rollover equity, escrow arrangements, and other provisions can affect what you pay, when you pay it, and what happens when the parties disagree about performance after closing.

Understanding the price is important. Understanding what you receive for that price—and the conditions under which you are required to pay it—is part of understanding the deal.
02 THE VALUE
Executive evaluating the operating value of a business
WHAT MAKES THIS BUSINESS WORTH BUYING?

Verify the Things That Make This Particular Business Worth Buying

Due diligence should not become an exercise in collecting documents simply because those documents appear on a checklist.

Start with the investment itself.

If recurring customers make the business valuable, understand those customer relationships. If intellectual property matters, establish what exists and who owns it. If a particular contract, license, lease, location, employee, supplier, technology, or source of revenue is central to the acquisition, determine what happens to it when ownership changes.

The information provided by the seller matters, but so does what is missing, inconsistent, unusually dependent upon one person or relationship, or conditioned upon something occurring before or after closing.

✓

The more important something is to your decision to buy the business, the more important it is to establish what happens to it when the business becomes yours.

03 THE STRUCTURE

Decide What You Are Buying Before You Decide How to Buy It

An asset purchase, stock purchase, membership-interest purchase, merger, or other acquisition structure is not merely a choice between different transaction documents.

The structure can affect which assets transfer, which liabilities may remain or follow, whether contracts require consent or assignment, how ownership changes, what happens to the existing entity, and how tax and operational considerations are addressed.

Business professionals discussing how an acquisition should be structured

That decision should follow from what you are trying to accomplish—not simply from the structure initially proposed by the seller, broker, lender, or another participant in the transaction.

The right question is not whether an asset purchase or equity purchase is generally “better.” It is which structure best fits this business, this buyer, this seller, and this transaction.
04 THE CAUTION POINT
Yellow traffic signal representing caution before committing to acquisition terms
PROCEED
CAREFULLY

Be Careful What You Agree to Before the Investigation Is Complete

Acquisitions develop through communications.

Emails, texts, LOIs, term sheets, confidentiality agreements, exclusivity provisions, proposed purchase agreements, financing discussions, representations to lenders or investors, and conversations with employees, customers, landlords, suppliers, or other parties can affect the transaction.

Some communications need to occur for the acquisition to advance. Others may be premature.

Before signing, accepting, rejecting, promising, disclosing, contacting important business relationships, or agreeing that a material issue has been resolved, understand whether additional information is still needed and what effect the decision may have on your negotiating position or remaining options.

A transaction can continue moving forward without treating every unresolved question as though it has already been answered.

05 THE DECISION
Business professionals evaluating important acquisition decisions

Preserve Your Options Before You Commit to the Final Structure

You may ultimately decide that this is an excellent business to acquire on substantially the terms proposed. You may negotiate different terms, change the acquisition structure, require additional protections, adjust the purchase price, make closing dependent upon particular conditions, or decide that information discovered during due diligence changes the opportunity.

You do not need to make those decisions before you have the information necessary to make them intelligently.

The immediate objective is to understand the business, preserve relevant information, identify what remains uncertain or exposed, and avoid unnecessarily surrendering choices that may matter later.

PRESERVE THE DECISION

Before you decide how to complete the acquisition, protect your ability to decide what transaction you are willing to complete.

Experienced business professionals meeting to discuss a transaction
EXPERIENCE MATTERS BEFORE THE TRANSACTION CLOSES

More Than 40 Years of Experience With Business Transactions

Buying a business brings legal, financial, operational, and practical decisions together in a transaction where the consequences may continue long after the closing.

The Watkins Firm has more than 40 years of experience representing businesses, business owners, entrepreneurs, and investors in complex business matters and transactions. That experience can be particularly important when an acquisition requires more than preparing documents—when the buyer needs to understand how the terms being negotiated today may affect ownership, control, liability, and the operation of the business after closing.

THE OBJECTIVE

The objective is not simply to complete the purchase. It is to help you complete the transaction with a clear understanding of what you are acquiring, the obligations you are accepting, and the protections you negotiated before the business became yours.

01 THE ACQUISITION TEAM

Business Acquisitions Often Require More Than Legal Analysis

Financial, accounting, tax, financing, and legal issues can overlap throughout an acquisition.

Watkins can work with your existing CPA, accountant, tax professional, lender, broker, and other advisors as the transaction develops. When appropriate, the firm can also draw upon professional relationships developed through decades of representing businesses and business owners.

Business, financial, accounting and legal professionals working together

The legal structure of an acquisition should not be considered in isolation from the financial and business consequences of the transaction.

AN ACQUISITION AGREEMENT HAS TO WORK AT MORE THAN ONE MOMENT
BEFORE CLOSING Define the Transaction
THE AGREEMENT
AFTER CLOSING Govern What Happens Next
02 WHEN EXPECTATIONS AND REALITY DIVERGE
Business professionals addressing a disagreement involving a transaction
TRANSACTION TERMS MATTER
AFTER CLOSING TOO

Transaction Experience Informed by Business Litigation

The parties negotiate an acquisition agreement when they expect the transaction to succeed. The strength of that agreement may become even more important when something does not happen as expected.

A representation may prove inaccurate. An assumed obligation may become disputed. An earnout may be calculated differently by buyer and seller. A promised transition may not occur. The parties may disagree about what was included in the acquisition or who is responsible for a problem discovered after closing.

WHY THE AGREEMENT MATTERS

The terms negotiated before an acquisition closes may become critically important if a disagreement develops afterward.

Watkins' experience in both business transactions and business litigation provides practical perspective when identifying risk, allocating responsibilities, negotiating protections, and drafting agreements intended to govern what happens after the closing as well as what must happen to reach it.

BUSINESS TRANSACTION
EXPERIENCE
BUSINESS LITIGATION
EXPERIENCE
INFORMING THE DECISIONS MADE
BEFORE CLOSING

Why Should You Consider a Business Acquisition Attorney from the Watkins Firm?

Dan Watkins - Founding Partner Watkins Firm

Why should you partner with a Watkins Firm business acquisition attorney? Buying a business requires more than preparing transaction documents. It requires understanding what you are acquiring, identifying what may come with it, and structuring the transaction to protect the value and objectives that led you to pursue the business in the first place.

The Watkins Firm provides more than 40 years of local experience and insight serving the business, healthcare, technology, and real estate investment communities in San Diego and throughout California.

Meet Daniel Watkins

Dan has practiced in the areas of business, medical practices and healthcare business, high tech/science, real estate and employment defense law since 1987. He is a trusted litigation strategist and true trial attorney with over 50 jury and bench trials to his credit. Dan has successfully represented both large companies and individuals and achieved substantial victories in well-publicized trials throughout California and the U.S.

He is experienced in business and corporate formation and administration, as well as all forms of alternative dispute resolution, including binding arbitration and mediation. Clients value Dan’s ability to listen carefully, understand complex challenges, and develop practical, effective solutions to difficult legal problems.

DECADES OF TRIAL AND LITIGATION EXPERIENCE

Dan has nearly four decades of experience working with, for, and against some of the largest insurance companies in the country. He has successfully tried and litigated cases in the areas of Healthcare Compliance, Commercial Litigation, Unfair Business Practices, Fraud, Breach of Contract, Battery, Premises Liability, Product Defect, Medical Malpractice, Discrimination, Sexual Harassment, Construction Defect, as well as Unfair Competition, Defamation, and Trade Secrets.

In December 2003, Dan commenced litigation against Health South Surgery Centers-West, Inc. and its subsidiaries, exposing the company’s extensive mismanagement and misconduct of its surgery centers. Dan has also been asked by some of California’s largest municipalities and corporations to conduct legally required investigations into matters involving alleged employment discrimination and harassment.

You can rely upon direct, personalized access and practical business guidance built upon three distinct strengths:

  • More Than Four Decades of Business Experience: For more than 40 years, the Watkins Firm has represented business owners, entrepreneurs, investors, executives, and companies in complex business transactions and disputes. That experience provides important perspective when evaluating an acquisition, negotiating its structure, and determining which issues should be addressed before the transaction closes.
  • A Transaction Built Around What You Are Trying to Accomplish: No two acquisitions present precisely the same opportunity or risk. The business, its assets, customers, contracts, employees, intellectual property, liabilities, purchase price, financing, and the buyer’s plans after closing can all affect how the transaction should be approached. The objective is not to force your acquisition into a standard transaction structure. It is to understand what you are trying to acquire and build the transaction around that objective.
  • Transaction Counsel Informed by Business Litigation: Watkins attorneys understand business agreements from both sides of the transaction—when they are negotiated and when they are later disputed. That experience can provide valuable perspective when evaluating representations and warranties, assumed liabilities, indemnification provisions, purchase-price terms, post-closing obligations, and other protections that may become important if the transaction does not unfold as expected.

Our business acquisition attorneys can work alongside your accountants, tax professionals, lenders, brokers, and other advisors to evaluate the legal and business issues affecting the transaction. Buying a business inevitably involves risk. The purpose of experienced counsel is to help you identify that risk while you still have options, understand what you are agreeing to, and negotiate a transaction designed to protect the value you intend to acquire.

The business may represent an extraordinary opportunity. The transaction should give you the opportunity you intended to buy.

BUYING A BUSINESS IN SAN DIEGO

Frequently Asked Questions About Buying a Business in San Diego

Do I Need an Attorney Before I Sign a Letter of Intent to Buy a Business?

You should consider involving an attorney before signing an LOI, particularly when it addresses purchase price, transaction structure, exclusivity, confidentiality, due diligence, financing, deposits, closing conditions, or other material terms.

An LOI may describe some provisions as nonbinding while making others binding. Even nonbinding business terms can establish expectations and negotiating positions that become difficult to change later.

The earlier an attorney understands what you are trying to acquire and the terms being proposed, the greater the opportunity to identify issues before you become substantially committed to the transaction.

What Should I Investigate Before Buying an Existing Business?

Due diligence should examine both what makes the business valuable and what could materially reduce that value after closing.

Depending upon the business, that may include financial records, tax information, contracts, customers, debt, liens, litigation, employees, intellectual property, leases, licenses, regulatory matters, equipment, inventory, ownership records, insurance, supplier relationships, and other material obligations.

The investigation should also test the assumptions behind the acquisition. If a particular customer, contract, employee, location, license, technology, or source of recurring revenue is one reason you are buying the business, what happens to it after the transaction deserves particular attention.

Is It Better to Buy the Assets of a Business or Buy the Company?

Neither structure is universally better.

An asset purchase can allow the buyer and seller to identify which assets are being transferred and which liabilities the buyer will assume. A stock purchase or membership-interest purchase generally involves acquiring ownership of an existing entity, which may provide greater continuity but also means acquiring an entity with an existing history and obligations.

Tax treatment, contracts, licenses, liabilities, financing, ownership structure, required consents, and the buyer's plans for the business can all affect the decision.

The appropriate structure depends upon what you are trying to acquire, what you are trying to avoid assuming, and what must remain intact for the acquisition to accomplish its purpose.

Can I Avoid the Seller's Liabilities by Using an Asset Purchase?

An asset purchase can provide important opportunities to define which liabilities the buyer agrees to assume, but it should not be treated as an automatic barrier against every historical obligation of the seller.

Successor-liability principles, taxes, employment matters, contractual obligations, regulatory requirements, the manner in which the transaction is structured, and other circumstances can affect whether exposure may follow the acquired business or assets.

That is one reason liability analysis should occur during due diligence and transaction structuring rather than relying solely upon language stating that a particular liability remains with the seller.

What Happens if Due Diligence Reveals a Problem With the Business?

Discovering a problem does not necessarily mean the acquisition should end.

Depending upon the issue and the stage of the transaction, the buyer may seek additional information, renegotiate the purchase price or other terms, require the seller to resolve a problem before closing, change the transaction structure, obtain additional representations or indemnification protections, establish an escrow or holdback, or make closing dependent upon specified conditions.

Some discoveries may materially change whether the acquisition still makes economic sense.

The value of discovering a problem before closing is that you may still have choices about what happens next.

What Should Be Included in a Business Purchase Agreement?

The required provisions depend upon the structure and circumstances of the acquisition, but a purchase agreement commonly addresses what is being acquired, purchase price and payment terms, assumed and excluded liabilities, representations and warranties, covenants, closing conditions, required consents, indemnification, and post-closing obligations.

Asset purchases may also require careful identification of included and excluded assets. Equity transactions may raise different questions concerning ownership, corporate authority, existing obligations, and the condition of the acquired entity.

The agreement should reflect the actual transaction the parties negotiated, rather than merely provide a generic document for transferring ownership.

How Do I Know Whether the Customers, Contracts and Goodwill Will Remain After I Buy the Business?

There is no single document that can guarantee that every customer, employee, supplier, or other business relationship will continue after an acquisition.

Due diligence can, however, help identify what those relationships depend upon. Important contracts can be reviewed for assignment, consent, termination, and change-of-control provisions. Customer concentration can be evaluated. Key employees and management relationships can be identified. Intellectual property ownership, licenses, leases, and other important rights can be examined.

Where continued participation by the seller or other individuals matters, transition arrangements or other negotiated provisions may also be appropriate.

If a particular relationship or asset is an important reason you are buying the business, its ability to survive the transaction should be examined before the purchase is completed.

Should My Attorney Work With My CPA or Other Financial Advisors When I Buy a Business?

Yes, when the transaction presents overlapping legal, accounting, tax, valuation, financing, or financial issues.

The acquisition structure that makes sense legally may have different tax or accounting consequences. Financial due diligence may identify concerns that affect legal negotiations. Financing requirements may affect closing conditions or transaction documents.

Experienced transaction counsel can coordinate with the buyer's CPA, tax professional, lender, broker, valuation professional, and other advisors so that decisions made in one part of the acquisition do not unintentionally create problems elsewhere.

When Should I Contact a Business Acquisition Attorney?

Ideally, before you become substantially committed to the structure or material terms of the acquisition.

You do not need to wait until a purchase agreement arrives. Counsel can become valuable when you are evaluating an opportunity, preparing or reviewing an LOI, beginning due diligence, determining whether to purchase assets or ownership interests, negotiating price and payment terms, or identifying what must happen before closing.

You do not need to have every answer before speaking with an attorney. The purpose of getting counsel involved early is, in part, to determine which questions need answers while you still have meaningful options.

Experienced San Diego Business Law Lawyers

Call 858-535-1511 for a Free Consultation

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Most matters begin with a free, substantive consultation.  This is a clear discussion of your current situation, what is known, and what is uncertain. The purpose of that conversation is to understand your position and determine the most effective next step.
That initial consultation is focused, structured, and practical. It is designed to identify risk, clarify options, and determine whether further action is necessary.

If you are starting a business, facing a business challenge, evaluating a situation, or simply need clarity on where you stand, we invite you to a conversation.

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