Transfer Of Ownership Business Agreement: What Type Should You Use

By | Business Contracts, Business Lawyer | No Comments

transfer of ownership business agreementWhether you’re the buyer or the seller, the transfer of ownership business agreement you select will significantly affect your legal rights and responsibilities.

Although there are variations, the two primary types of business ownership transfer agreements are:

(1) Asset Purchase Agreement; and

(2) Equity Purchase Agreement

1. Asset Purchase Agreement

With an asset purchase agreement, the buyer (either an individual or a business entity) purchases some or all of the seller’s assets but does not acquire equity in the seller’s company.

A major advantage to the purchaser in an asset purchase is that the buyer is generally shielded from liability for what happened in the business when the selling entity owned the assets.

Related Resource: Sale Of A Business

For the seller, the primary advantage of an asset purchase is that it’s easier to retain ownership of some assets rather than sell them as part of the deal. This may be particularly important to a seller who wants to keep ownership of a building, vehicles, or equipment used by the seller to run other businesses that are not for sale.

2. Equity Purchase Agreement.

Instead of an asset purchase, one can buy corporate stock, LLC membership interests, or other entity equity from a seller.

In this scenario, the assets to do not transfer ownership, just the equity.

The business retains the same liability exposures that it had prior to the transfer of equity from seller to buyer and continues as a going concern.

However, an equity purchase is typically both quicker and simpler to accomplish than an asset purchase.

In addition, the deal can be a partial equity purchase. For example, the purchaser might buy 75% of the seller’s equity in the business while the seller remains an investor (active or passive) with a 25% equity stake in the company.

Where To Get A Transfer Of Ownership Business Agreement

An experienced business contracts lawyer (e.g. Attorney Mike Young) will be able to both advise you on the best type of transfer of business ownership agreement to use (asset or equity) plus prepare the contract and related legal documents for completing the deal.

Frankenforms: The Dangers Of Internet Business Broker Legal Documents

By | Internet Lawyer, Website Lawyer, Website Legal Documents | No Comments

internet business broker legal documentsWhen you’re buying or selling an ecommerce company, using Internet business broker legal documents is typically a very bad idea.

Why?

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.

Related Article: 7 Keys To Picking The Right Internet Lawyer For Your Business

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 online biz brokers serve a purpose?

Yes! They help put sellers and buyers together. And that’s a good thing.

Related Article: 3 Things You Must Do To Quickly Sell Your Internet Business

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 instead of Internet business broker legal documents?

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.