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Should You Buy The Equity Or Assets Of An Online Business?

By Business Contracts, Business Lawyer, Internet Lawyer, Website Lawyer
how to buy an online business course

When you’re considering an online business acquisition one of the key issues to decide is whether to buy its assets or the equity of the entity (e.g. corporate shares) that owns it.

It’s been my experience that 90%+ of the time an asset purchase makes more sense than buying equity.

Why?

With an asset purchase you can limit liability exposure better for the seller’s acts and omissions prior to closing on the deal. For example, you can reduce the risk you’re getting hit with a lawsuit or back taxes owed from pre-closing activities while the seller ran the business.

However, there are important exceptions to the general rule that an asset purchase is the better way to proceed.

For instance, there may be nonassignable contracts in place with the seller’s entity (e.g., ad network agreements) that are essential to running the venture profitably.

Another common reason for an equity purchase is where the primary source of revenue from the online business is marketing to its email lists. Where there’s an inability to sell those lists as assets because of spam and privacy laws, an equity purchase may be the only legal option available.

If you haven’t bought an ecommerce venture before, you might want to pick up a copy of my course “How To Buy A Successful Online Business.

And if you need legal help with buying an online business (e.g., purchase agreement and related documents), let’s talk by phone.

Is Now The Right Time To Buy An Online Business?

By Business Contracts, Business Lawyer, Website Legal Documents
how to buy an online business course

Many angel investors and venture capitalists are pulling back and regrouping right now as the economy takes a hit.

Does that mean you should postpone buying an online business?

Actually, it increases your odds of getting better terms from the seller. And in some cases, you’ll be able to acquire a sound business that wouldn’t otherwise be for sale.

Why?

There are founders who are getting a rude awakening as funding for their startups dries up. What they thought would quickly become a unicorn won’t.

And, let’s face it, many startup founders have the attention span of a squirrel. At the first sign of adversity (e.g., a recession), they start looking for something new to do, ready to abandon an otherwise good business.

That’s where you come in as the potential buyer of the startup.

Of course, you’ll want to perform due diligence and structure any deal to protect you when you decide to buy an online business.

But the opportunities are there. With more coming. You just have to look.

If you need legal help with the acquisition, it’s probably time to schedule a phone consultation with Business & Technology Lawyer Mike Young.

Buy Someone Else’s Sweat Equity

By Business Contracts, Business Lawyer, Internet Lawyer

Instead of starting your own online business from scratch, it often makes more sense to buy an existing e-commerce venture.

Let someone else spend the first years getting the business up and running. They invest their sweat equity in the startup and you can profit from that by purchasing their venture at the right price.

When you purchase an existing e-commerce business, you’re buying a proven concept that (should be) profitable and buying years of time you’ll save that the founder(s) spent building it up.

What if you’ve got an existing online company? Often it makes sense to grow it by acquisition of competitors or buying complementary businesses.

Now an experienced Internet business lawyer can help you structure a deal that makes sense for both you and the seller.

If you want Attorney Mike Young’s help with buying an online business, the first thing you’ll want to do is schedule a phone consultation with him.

Should You Buy An Online Business’ Equity?

By Internet Lawyer

Should You Buy An Online Business’ EquityWhen you’ve decided to purchase an existing e-commerce business, should you purchase the company’s equity (corporate shares, member equity interests, etc.)? As a general rule, it rarely makes sense to buy an online business’ equity when you’re acquiring it. Most deals are asset purchases instead of buying equity.

Here’s why…

First, with the transfer of equity, you also get the company’s existing and potential liabilities. Even with due diligence prior to closing, you can still end up having bought a pig in a poke…lawsuits, tax judgments, etc.

Second, a seller will often want to retain their entity and some assets unrelated to the sale of the business you’re purchasing. For example, the seller may have an e-commerce venture that’s in a different niche but owned by the same entity…and that won’t be part of your deal. In fact, smart sellers often hide their unrelated online ventures so that buyers don’t even know about them.

Of course, there are rare exceptions to the general rule. For example, if the primary asset of the online venture is the seller’s email lists, it may make sense to buy the entity’s equity instead of the lists themselves. Why? Because email subscribers opted-in to receive messages from one entity…they didn’t give a second entity permission to email them.

Even if an email autoresponder service lets an asset purchaser assume control of the seller’s email lists, chances are the buyer’s sending of emails to the lists violates federal and/or state laws because there was no consent by the recipients. What was perfectly legal for the seller to send becomes unsolicited commercial email (spam) when sent by the buyer.

These are just a few of the issues you’ll want to discuss with your Internet business lawyer as you explore the best way to acquire an e-commerce business. Just don’t assume that you can buy an online business’ equity without there being some significant legal risks that should be minimized as part of structuring the deal.

7 Keys To Buying An Online Business

By Website Lawyer, Website Legal Documents

couple buying an online businessAre you interested in buying an online business? Before making the final decision to purchase an Internet venture, knowing as much as possible about the company to be acquired can help set you up for success after the papers are signed.

Here are seven important factors to consider as part of your pre-acquisition due diligence…

1. Internet Businesses Are Not Just About The Website

Buying an online business means looking deeply into the metrics and data provided by the seller to tell you more about how the company operates and its current sources of revenue.

As the prospective purchaser, the seller must be prepared to ask your difficult questions regarding sources of site traffic, revenues, expenses, vendor relationships, labor relations (employees and independent contractors), etc.

2. The Importance Of Non-Competition Agreements

Although the seller of a business often wants to move on to retirement or an unrelated venture, don’t assume this is the case.

Instead, you’ll want to use non-competition agreements to ensure the seller(s) and key employees don’t walk away and use their insider knowledge to directly or indirectly compete against the company you’re buying.

3. Verify Guarantees And Potential Liabilities

Products and services offered in the past by the seller should be carefully reviewed when thinking about buying an online business. As part of this due diligence, check out old versions of the company’s website(s) from the owner (e.g. Wayback Machine).

Why is this important? Because the seller may have made commitments that you could be on the hook for if you buy the company.

For example, the seller might have offered lifetime guarantees on a product or service. Customer claims could come back to haunt you as the new owner. There are ways that an experienced Internet business attorney can eliminate or limit your potential liability exposure for such hidden liabilities.

4. Beware Of Access Issues

Although you’ll want to make certain every password is changed when you’re buying an online business, there’s more than that involved for internal security and website legal protection.

For example, you’ll want to limit internal access to essential personnel. And if there’s been custom coding, you’ll want to make sure that the developers didn’t leave any hidden back doors to access the company’s site(s) post-purchase.

5. Check Out Merchant Bank Requirements

If you already have a business (online or offline), you may already have a merchant bank that processes credit cards. You should see what additional requirements (if any) need to be met to use the same processor for the acquired venture. However, if you’re planning to use the same merchant bank as the seller, you should see what you’ll need to do to make that happen. Will the bank require personal guarantees? What about transaction fees? These costs can be important, particularly when profit margins on products/services are small.

6. Decide If You Need A Business Valuation Expert

For many acquisitions of Internet ventures, a business valuation expert isn’t retained. There are common methods of valuing such a company without paying for an expert to do it. You can discuss these with your Internet attorney and/or CPA. And, let’s face it, the market value at time of purchase is what a buyer is willing to pay.

However, it may make sense in some instances to hire a business valuation expert, particularly if you’re paying seven or eight figures for the company. The data supplied by the expert can be used for negotiating a better deal.

7. Check Out The Seller’s Email Marketing

If email marketing is integral to the online business, you will want to know how and when the seller acquired the names and email addresses on the company’s lists. This will help you avoid legal liability for unsolicited commercial email (spam) and determine monetary value of such lists based on a variety of factors (e.g. prospect v. customer, freshness, open rates, etc.).

In addition, you’ll need to determine the portability of the lists to you as the purchaser. For example, in some asset purchases, a third party autoresponder service will not transfer the lists to a new owner. On the other hand, if the selling entity’s equity is acquired (instead of the business assets), then the autoresponder service will likely let you continue to market to the lists because the entity purchased still owns the lists.

Do You Need Legal Help Buying An Online Business?

If you are serious about purchasing an Internet venture, it’s probably time to speak with an experienced online business attorney. You can schedule a phone consultation with Internet Lawyer Mike Young using our online booking system or by calling 214-546-4247.