Mergers, Acquisitions and Business Contracts

Texas law does not require a lawyer to buy a small business, but buying one without legal help is risky. A lawyer helps decide whether to buy assets or stock, reviews the seller's contracts, leases, permits, employees, debts and liens, drafts or negotiates the letter of intent and purchase agreement, and protects you with representations, warranties, indemnities, escrows, and non-compete terms. If a bank or SBA loan is involved, counsel coordinates closing documents with the lender. Problems hidden in a business, such as unpaid taxes, missing licenses or contract restrictions on transfer, often surface only through careful diligence. Kennedy Sutherland LLP represents buyers and sellers in business acquisitions.

In an asset sale, the buyer purchases selected assets, such as equipment, inventory, contracts and goodwill, and usually takes on only the liabilities it agrees to. Buyers often prefer this because it limits unknown liabilities and can create tax benefits from a higher basis in the assets. In a stock or membership interest sale, the buyer purchases the owner's equity and the company keeps all its assets, contracts and liabilities. Sellers often prefer this for simpler closing and, in many cases, capital gains treatment, especially for C corporations. Contract consents, licenses and tax treatment often decide the structure. Negotiation can bridge the gap with price adjustments. Talk with your lawyer and CPA early.

A letter of intent, or LOI, is a short document that sets out the main terms of a deal, such as price, structure, timing and key conditions, before the parties spend money on due diligence and a full purchase agreement. Most LOIs say that the business terms are not binding, so either party can still walk away. Certain provisions are usually binding, such as confidentiality, exclusivity or no-shop periods, who pays expenses, and governing law. Whether an LOI is binding depends on its exact wording and the parties' conduct, so careless drafting can create an unintended contract. Have a lawyer review the LOI before signing, because its terms shape the final deal.

Every small business should have a lawyer review the contracts that carry the most risk or the longest commitment. These usually include commercial leases; customer agreements and terms of service; vendor and supply contracts; loan documents and personal guaranties; partnership, company or shareholder agreements; employment, contractor, non-compete and confidentiality agreements; franchise or distribution agreements; software and data agreements; and any contract to buy or sell a business or real estate. A one-time review to build solid templates for repeat contracts often pays for itself. Watch for automatic renewals, unlimited liability, personal guaranties and one-sided termination rights. Kennedy Sutherland LLP drafts and reviews business contracts and can set up standard templates. Fixed-fee packages available. Call 210.259.3885 for a quote.