Top Legal Considerations When Buying or Selling a Business
Buying or selling a business is an exciting step—but it’s also a complex legal transaction that involves far more than simply signing on the dotted line. Whether you’re a buyer looking for growth or a seller preparing for a successful exit, taking the right legal steps can protect your interests, avoid costly mistakes, and ensure a smooth transition. Here are the top legal considerations to keep in mind.
Choose the Right Type of Sale: Asset vs. Stock Purchase
One of the first decisions in a business transaction is whether it will be an asset sale or a stock (or membership interest) sale. Buyers typically prefer asset purchases to avoid liabilities, while sellers may benefit more from stock sales due to tax and simplicity. The structure you choose can have significant legal and financial implications, so be sure to consult an attorney early in the process.
Conduct (or Prepare for) Thorough Due Diligence
Due diligence is not just a formality—it’s a critical legal process. For buyers, it means thoroughly investigating the business’s financials, contracts, legal obligations, licenses, employee matters, and potential liabilities. Sellers should be equally prepared, organizing records and disclosures to present a clear, accurate picture. Overlooked details here can turn into serious post-sale disputes.
Review and Negotiate Contracts and Agreements
Business ownership often involves existing contracts with vendors, customers, landlords, or employees. Will those contracts transfer? Do they have clauses that could create complications? Both parties need to carefully review and negotiate key terms to ensure that rights, obligations, and risks are clearly understood and assigned properly.
Address Employment and Labor Law Issues
A change in ownership often affects the workforce. Depending on how the sale is structured, the buyer may inherit employment contracts, benefits obligations, and HR policies. California has strict labor laws—including rules around employee classification, accrued vacation time, and terminations—that must be followed to avoid legal trouble.
Protect Intellectual Property and Confidential Information
From logos and trademarks to trade secrets and client lists, intellectual property (IP) often represents a major part of a business’s value. Ensure all IP is properly registered, transferable, and clearly included in the sale agreement. Non-compete, confidentiality, and non-solicitation clauses may also be necessary to protect the business after the sale.
Ensure Compliance with Licenses and Regulations
Certain industries require specific licenses, permits, or regulatory approvals. If those are not transferable or properly updated post-sale, the buyer may face disruptions—or legal penalties. Compliance with local, state, and federal regulations is essential before and after the transaction closes.
Draft a Clear, Customized Purchase Agreement
The purchase agreement is the cornerstone of any business sale. It must outline pricing, payment terms, representations and warranties, indemnification clauses, and conditions for closing. A well-drafted agreement minimizes misunderstandings and helps avoid future disputes. Don’t rely on generic templates—this is one place where legal expertise is non-negotiable.
Final Thoughts
Whether you’re buying or selling a business, the stakes are high. Having experienced legal counsel on your side ensures the process is handled thoroughly, professionally, and in your best interest. At Von Esch Law Group, we specialize in guiding business owners through every stage of the transaction with strategic, client-focused legal solutions.
Ready to Take the Next Step?
Contact Von Esch Law Group for a personalized consultation and let us help protect what matters most in your business transaction.