Purchasing a business is a complex transaction. Often while purchasers negotiate the terms of such a transaction on their own, there are matters that, if they are not agreed to upfront, can blow up into big issues down the road. Vancouver business lawyer Luca Citton answers some questions related to three main negotiation points that sometimes slip through the cracks: existing employees of a business, restrictive covenants and residual liabilities.
What should I consider if the business has existing employees?
First, make yourself familiar with the employees’ records, then ask yourself if you want to keep the employees. If the answer is YES, you must be willing to recognize their past years of service. In doing so you will be taking on all severance obligations yourself. If you do not wish to keep the employees, you need to make sure that the vendor terminates and pays out all employees before you buy the business.
What are some key clauses that I should consider?
You should consider non-competition and non-solicitation clauses for the principals of the business. These clauses are intended to restrict the vendor from taking actions that will cause the purchaser financial harm, namely taking business and clients away from the newly purchased business. Key factors in the negotiation should include determining the duration of the clauses, and their territory of application.
How do I handle liabilities that may arise after the purchase, such as unpaid vendors?
Ideally, you can completely avoid this issue with proper and thorough due diligence. However, it would make sense to holdback a portion of the purchase price for a specified time to be used against any unforeseen liabilities such as accounts payable or lease payments. Another option is to add an indemnity clause by which the vendor indemnifies the purchaser after closing for any costs they may incur from unforeseen liabilities.
When discussing the potential purchase of a business, don’t just consider the most obvious deal points. Think about which business assets such as employees and clients, drive the value of the business you wish to buy so you can realise the best deal possible.
If you have further questions please contact Luca Citton.
The material contained in this article is for your general information and should not be taken as legal advice.
Tags: Luca Citton, Business Law, Article