In previous blogs, I’ve talked a bit about why it’s a good idea to have an attorney prepare proper purchase documents – Purchase Agreements, a Bill of Sale, and possibly a Loan Agreement or Promissory Note (depending on how the business purchase will be financed). You could conceivably spend a few thousand dollars on attorneys’ fees to have those prepared. Compare that to the $160,000 (for example) that one might spend when purchasing a business, though, and those attorneys’ fees amount to somewhere in the ballpark of 2% of what one would pay for the business. What you get for those attorneys’ fees is a whole lot of legal protection in the event that the seller, just for example, (i) doesn’t actually own the business or assets they’re trying to sell you, (ii) has undisclosed or unknown tax debts, unpaid vendors, unpaid loans or credit card debts, or other liabilities, (iii) has completely misstated the value or profitability of the company you’re buying, (iv) decides to open up a competing business right next door to you, or (v) simply ends up refusing to hold up their end of the bargain in some way. Often, a buyer and seller will agree to split the legal fees for these documents because they also provide important protections for the seller if, say, the buyer reneges or does something after the sale that creates legal claims against the company and its owners.
There are many websites nowadays that would be more than happy to sell you some template documents for $50. Those documents weren’t written with your transaction in mind, probably weren’t written to comply with specific state laws, and usually always need significant modification to simply describe the deal you want to achieve – to say nothing of the legal protections you’d want. Since the old saying “you don’t know what you don’t know” is especially true when it comes to writing contracts, I’d strongly encourage you to have a good business attorney – whether that’s me or one of the many other talented business attorneys in the state you are purchasing your business in – take the time to draw up the purchase documents you need. It’s one of the best ways to protect you and your investment and get started off right in your new business venture.
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