Asset Purchase Agreement: 7 Supplemental Documents When Buying A Business

By | Business Contracts, Business Lawyer | No Comments

Asset Purchase Agreement: 7 Supplemental Documents When Buying A BusinessAlthough an asset purchase agreement plays a vital role when buying a business’ assets, there are other important legal documents used in the transaction to ensure that you get what you want from the deal whether you’re the buyer or the seller.

Common Documents For Buying A Business’ Assets

Here are 7 documents an experienced business contracts attorney will frequently use to protect clients for business asset acquisitions.

1. Letter of Intent (LOI) – The LOI is a broad overview or outline of the proposed transaction. If there’s agreement on the LOI’s terms and conditions, an asset purchase agreement will flesh out the details after due diligence is performed.

2. Bill of Sale – A bill of sale is commonly used for transfer of business assets that aren’t real estate.

3. Intellectual Property (IP) Assignments – This type of legal document is used to assign ownership of patents, trademarks, and copyrights from seller to buyer. In some instances, a license may be used instead where the seller retains IP ownership. Or, the seller as an IP licensee may transfer its license to the buyer.

4. Memorandum of Asset Purchase – A memo is a great way to identify that an asset purchase has occurred without going into detail. The memo can be used with third parties while maintaining confidentiality for important terms and conditions (e.g. price) found within the asset purchase agreement.

Related Article: Asset Purchase vs Stock Purchase – How To Buy A Company

5. Escrow Agreement – This agreement covers escrow services that protect both parties to the transaction, reducing the risk buyer won’t receive the assets or that seller gets stiffed on payment when transferring the assets. For the sale of Internet businesses, Escrow.com is a popular escrow service.

6. Business Broker Agreement – Although it’s more common for the seller to have a business broker (who lists and promotes the sale of the company), you’ll also find brokers who represent a buyer in these transactions. Regardless of which party is being represented, the broker’s agreement will describe the terms of representation, including when and how the broker gets paid when the business is sold (either as an asset or equity transaction).

7. Seller Consulting or Employment Agreement – Frequently, the seller will stay on for a period of time after closing occurs. If it’s an active role for more than a month, the seller will often sign a contract that describes the seller’s post-closing rights and responsibilities either as an employee or independent contractor consultant for the business.

Related Article: Sell An Internet Business – 5 Expensive Mistakes to Avoid

Of course, there are other legal documents that are used when business assets are purchased because each deal has unique characteristics. For example, if there’s seller financing, there may be a promissory note reflecting the buyer’s debt and the payments to be made.

Where to get an asset purchase agreement and related legal documents

Whether you’re buying a company’s equity or its assets, Business Lawyer Mike Young may be able to help you get the deal done right.

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.