Buying an existing company might seem like the easier option, but is it?
We recently had a client who thought buying the company rather than the business would make things much simpler.
The problem? You could be taking on a lot more than you bargained for.
From unexpected liabilities to contracts that aren't quite as straightforward as they seem, there are some important risks to consider.
In this short video, Ross explains what buyers need to be aware of before signing on the dotted line.
If you’re thinking about buying a business or company, watch Ross’s short video before making your next move.
Working with you,
The Millens Team
Ross Millen:
Hi. I had someone on a new matter the other day where they said, I asked, "Are you buying the business?" And they said, "Oh no, we've decided it's much easier to just buy the existing company." And I said, well, buying a company has a lot of issues with it. You buy the company, warts and all, and that means that, for instance, if the vendors of the business to you or the vendors of the company to you have done something in the company that you don't like, maybe they've had some aggressive tax planning, maybe they haven't fully paid their employees, maybe they've incurred some liability that's not covered by insurance, you end up with the company with all those problems inside the company that you've got to deal with.
How do you protect yourself against that when you're buying a company, buying all the shares in a company? You've got to get very, very extensive warranties, lots and lots of warranties. And you've got to make sure that if the warranties are breached, you've got someone to proceed against, someone who has got money who can pay you the damages. And sometimes you can also hold back some money or put it into trust for a period of time, to make sure there's some money there to cover you if liabilities emerge.
And then the client said to me, "Well, the other thing is that because we're buying the company, it's so much simpler. We don't have to assign all these contracts." And I said, look, a lot of the major contracts will have a thing in it called change of control. If the control of the company you're buying changes, as it would, then you need to get the consent of that other party to the contract anyway. This extends to leases and maybe finance leases, and major contracts with suppliers, and major contracts with some customers. Remember that sometimes it's actually easier to buy the business rather than just buy the company.
If you're looking to buy a business or looking to buy a company and you need some practical legal advice, contact me, Ross Millen, or anyone else here at the Millens Team, because we're here to help you with your legal issues.