When you’re buying or selling an Internet business, using a broker’s template documents to do so is typically a very bad idea.
Whether it is a letter of intent (LOI), the purchase and sale agreement, or related documents (e.g. escrow agreement, promissory note, etc.), the broker’s documents are usually garbage that don’t protect anyone except perhaps the broker.
How the Frankenform is created
Most online business brokers are not Internet attorneys. In order to get deals done (even incorrectly), they’ll patch together various parts of different legal documents they find at different sources and use these Frankenstein forms for all e-commerce sales and acquisitions without even understanding what the legalese in the documents really means.
As an Internet lawyer representing clients in the purchase or sale of an e-commerce company, I’ve seen horror stories because of these Frankenforms. For example, it’s common for a broker to provide an asset purchase template to use even when it is an equity deal.
Because these documents are slapped together from various pieces of other contracts, you’ll often see problems with identifying what is being sold, the price, method and timing of payments, and even the identities of the parties (sometimes referring to the seller when it should be the buyer or vice versa).
The parties, including the broker, sign documents for the deal without anyone fully understanding the legal rights or obligations of everyone involved because the forms used are vague and often conflict with the parties’ intent.
It’s also common to see the broker try to push through a deal without all of key players signing on the dotted line. For example, brokers will often attempt to sell an Internet business by having a single signature on the documents for the seller even if the seller happens to be married. This can cloud ownership to the business because the spouse has not consented in writing to the sale. And that’s a recipe for disaster for the buyer, particularly when the seller goes through a divorce and the spouse wants either a share of the business or a cut of the sale proceeds from the deal.
Do Internet business brokers serve a purpose?
Yes! They help put sellers and buyers together. And that’s a good thing.
However, a business broker represents one party for a commission. And the broker’s forms should not be used to ink the deal for convenience purposes.
What should you do?
At a minimum, your Internet lawyer should review and revise the broker’s forms (including the LOI) before you sign anything. Ideally, you’ll want your Internet business attorney to draft the documents so they save you time, money, and many legal headaches. That way you’ll avoid the pitfalls of Internet business broker legal documents.
And if you’re a business broker who insists on using templates, have a qualified Internet lawyer prepare them for you, explain what they mean, and consult that attorney on deals to ensure you’re protected and your clients are getting deals done right.