Buying a Business in Georgia

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There are unique legal challenges to purchasing a business in Georgia that require careful attention by a qualified and experienced attorney. Even when the purchase or acquisition has been coordinated by a licensed business broker, no matter how large or small the deal is, an attorney should always be retained to prepare or review the necessary documentation and perform necessary legal due diligence.

Of course, the primary consideration in deciding whether to purchase a business should be whether the transaction makes business and financial sense. Brokers perform a valuable function by bringing sellers and buyers together and helping to negotiate a fair price and other terms, such as seller financing when third-party financing is not available.

However, buyers need to realize that brokers have an inherent conflict of interest in representing both sides of the transaction. Buyers therefore need to do their own due diligence in deciding whether a deal makes sense.

Perhaps the most important question that a buyer should ask the seller is, “What is your reason for selling the business.” It is common sense that, in general, a business owner will not try to sell a quality business that is earning money unless there is some non-business reason for doing so. The most common reason for selling a business, of course, is that the owner wishes to retire.

Buyers should be wary, however, if the seller gives a glib explanation such as, “I want to try something else,” as their reason for selling the business. Such simplistic excuses are often a cover for the fact that the business is no longer profitable.

For larger transactions, buyers will almost always hire a financial expert, such as a CPA or business appraiser, to do a valuation of the business. The valuation will then be the basis for negotiating the final purchase price. For smaller transactions, however, a buyer may decide that the cost of hiring an appraiser outweighs the benefit of obtaining a valuation. For those deals, the purchaser may rely on whatever financial records are available to determine the average income that the business generates. At a very minimum, the purchaser should review the seller’s income tax records to see whether the business is profitable.

In addition to business and financial considerations, however, buyers should not overlook the legal side of purchasing a business. For smaller companies, much of the business’s value may be tied to particular legal arrangements, such as a valuable lease or customer contract. Hiring an attorney to review these documents is essential to determining whether the business will continue to generate revenue after a change of ownership.

Also, just as attorneys review public records to determine the quality of title in a real estate transaction, there are various record searches that should be conducted by an attorney prior to closing a business acquisition. Most importantly, the attorney should conduct a lien search to make sure that there are no hidden liens against the assets, equipment, or inventory of the business being purchased. The attorney must also review all relevant corporate documents pertaining to the business, including operating agreements, bylaws, or shareholder by-sell agreements. Reviewing these documents is necessary for the attorney to determine whether the signatories to the final purchase-and-sale contract have the necessary authority to properly convey the business.

Finally, special attention must be given by the attorney to the purchase-and-sale agreement itself. Many brokers have form agreements that they use for every transaction. However, unlike real estate transactions, business purchases require that each agreement be custom-tailored to the particular business being sold. For example, if the essential value of the business lies in the equipment, special care should be given to describing the equipment and other business assets in the written contract. Also, any special types of financing arrangements must be described by the attorney in the contract to prevent any misunderstandings down the road. Finally, only an attorney can decide whether it makes more sense for the buyer to purchase all of the assets and accounts of a business, or whether the buyer should purchase the business entity itself.

Buying and selling a business should be a coordinated effort between the parties, their brokers, agents, and attorneys. Above all, the process should not be unduly rushed by any of the parties. By taking the necessary time to perform a reasonable investigation and prepare high-quality documentation, all parties to the transaction can walk away from the deal with confidence in the future of the business.

From the author: Justin M. Pawluk
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