Offer & Acceptance.  A contract is formed with an offer, acceptance, and consideration. For example, a buyer might offer to buy your company for consideration of $1.8m. It is possible for you to accept such an offer explicitly, implicitly, or constructively—which means that your actions are taking place on a legal minefield. For this reason, we recommend that all contract negotiations be in writing and contain specific terms. Often, we start negotiations with a letter of intent that identifies and explains the key terms of the proposed deal. It’s more efficient to reach an agreement on the “big stuff” first and then plug that into a comprehensive purchase/sale contract. The common terms in a letter of intent are: Price, Timeline, Due Diligence, Contingencies, Cure Periods, Allocation of Costs, Seller Financing, and Inclusions.

Contingencies. We represent buyers, too, so we know that buyers use contingencies to “game the system.” They will offer to buy your company, so long as they can subjectively decide to back out at a later date. This is important for buyers for many reasons. But as the seller, you need a committed buyer who wants to follow through with the transaction. You can minimize the impact of non-committal buyers by including in the contract a provision that allows you to continue marketing and accepting offers on your business until the contingency periods expire. Also, we strive to eliminate subjective contingencies so that a buyer has to find something that legitimately alters their opinion of the company (e.g. unpaid taxes).

Financials. We see so many transactions fall apart after the buyer begins his due diligence and opens the company’s books. Buyers tend to find either (a) poorly kept books, or (b) a financial picture that is different than what you described to them. Usually these two items are related.  Any good business owner should know his or her numbers, but business ownership can be emotional and sometimes it’s the job of the owner to be optimistic in the face of uncertainty. But that should be no excuse to not know your numbers and effectively sell them to a buyer.

Corporate Defects. I know that you’re not that interested in keeping minutes of every meeting and resolution, or properly documenting each change to the structure or ownership of your company—that’s not a necessary element of running a successful business. But when a buyer’s attorney reviews your corporate books it should be undeniably clear (a) who owns the company, (b) who has an interest or right in decision making, (c) who may have given up a right or interest in the company, and (d) whether all interested parties have agreed to sell. These things are obvious from your perspective, but to an outsider it is important to be very clear as to who could come back and make a claim against the company after the buyer invests.

Representations & Warranties. As the seller, you want to make the fewest possible representations and warranties in order to maximally limit your future legal risk. The things that are said in the course of courting or negotiating will be canceled by the final contract, which will include an entirety clause to say that only the terms of the deal are only those written in the contract. Making representations or warranties operate as promises that, if unfulfilled, can spark a lawsuit for breach of contract. But sellers cannot usually avoid making any representations or warranties because the buyer needs some security for things that may not be easily verified in due diligence. A business attorney will help you navigate this common issue during the contract negotiation and drafting process.