The process of buying a business can overwhelm any entrepreneur. It also exposes the owner and the business to legal liabilities. With sound legal advice and effective planning, however, you can mitigate these risks and reduce the potential for wasted investments, litigation fees, and impaired business operations. An experienced Texas business attorney can help your business identify and mitigate risks in a business acquisition to reduce the chances of incurring unnecessary expenses.
In general, due diligence is the process by which a buyer or seller performs a comprehensive appraisal of a business asset before executing a sales transaction. On the buyer’s end, this thorough investigation will examine the assets and liabilities of the assets, and form a picture of their commercial potential. Due diligence investigations typically focus on specific areas of inquiry, such as strategic positioning, financial data analysis, operational asset valuation, and legal matters. An effective due diligence process can do more than simply protect a corporation from liability to its shareholders. It can also identify problems before they cost the acquiring business money, time, or goodwill. It can prevent depreciation or transfer of valuable assets in situations where it is not fiscally prudent to do so. It can also prevent contract disputes, arbitration, business litigation, and a host of other processes that have the potential to seriously impair daily business operations.
Buyers must also verify and corroborate due diligence studies using more than one metric. In the late 1990s, venture capital flowed freely to internet startup companies shortly before the dot-com bust. Many of these venture capital firms relied solely on an EBITDA report (earnings before interest, taxes, depreciation, and amortization) without corroborating the company’s financial health. Cash flow analyses, accounting investigations, and tax reports must all corroborate the status of a target company’s financial health.
How to Structure a Business Acquisition
A business acquisition may take many forms. Two companies can reconstitute to form a new legal entity. One company can absorb the other company, which ceases its legal existence. One company can absorb specified assets, liabilities, and management rights while the other company retains its separate legal existence. One company can exist as a subsidiary of the other. The different legal statuses of these corporate identities provide different benefits and risks. An experienced attorney can help you identify the corporate structure that best meets your needs.
In addition to corporate structure, an acquisition can also make specific provisions for which assets, liabilities, and management rights the acquiring company will own after the transaction. You may tailor these, too, to your company’s specific needs. A business acquisition may entail different financial options. In lieu of cash, an acquisition can involve a credit swap or stock exchange. The acquiring company can take on debts of the purchased company to finance the transaction. You can negotiate these terms to meet the needs of all parties to the transaction.
Effective Representation for All Your Business Purchasing Needs
The Weisblatt Law Firm offers a wide array of services that will help build a successful business from the ground up. Call (713) 352-0847 or write us online to schedule your free phone consultation today. Attorney Andrew Weisblatt has more than 25 years of experience advising business owners on due diligence and business acquisition issues.