Mergers & Acquisitions

Due Diligence | Part 7 | Miscellaneous Issues

We’ve finally arrived at the last post in our due diligence section of our series on the purchase and sale of a business. In today’s post we explore some of the miscellaneous issues you should be aware of during due diligence.

Real Property Issues We’ve mentioned in previous posts that you should review all “material” contracts, which would include all leases, deeds, or other real property-related contracts. However, there are other, lesser known, real property issues that are often overlooked during due diligence. One of these “other” issues is easements and other restrictions on your ability to use the real property as you’d like.

An easement is a right of use over the property of another. For example, you may be purchasing a...

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Mergers & Acquisitions

Due Diligence | Part 6 | Material Contracts and Information

We continue our series on due diligence and our series on the purchase and sale of a business by tackling—yes, this word was chosen in part because of last night’s pre-season opener for our Seahawks—the next phase of due diligence: material contracts. So far we have covered the financial, legal, and operational issues associated with the due diligence process. In today’s post, we’re exploring one of the more time-consuming aspects of due diligence, reviewing every material contract of  the target company.

Who, What, When, Where (and How?) As we have been discussing throughout this series, it’s incredibly important to know the business you are acquiring in and out. This includes examining every contract the company has entered into and is bound by at...

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Mergers & Acquisitions

Due Diligence | Part 5 | Intellectual Property Issues

In today’s post we’re continuing our series on due diligence and our series on the purchase and sale of a business. So far we have covered the financial, legal, and operational issues associated with the due diligence process, and today we’re going to explore the intellectual property issues associated with due diligence. For many businesses, the most expensive asset the company owns is its intellectual property, which makes understanding any IP-related issues increasingly important.

Registered Trademark Rights One important issue to explore when purchasing a business is whether that business has any federally registered trademarks. By registering a trademark with the United States Patent and Trademark Office (the USPTO) you receive broader protection for your trademarks and an enhanced ability to protect your...

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Mergers & Acquisitions

Due Diligence | Part 4 | Operational Issues

In today’s post we continue exploring the depths of the due diligence phase of purchasing a business. We’ve already discussed the financial issues and the legal issues, and today we’ll look at the operational issues surrounding due diligence. We’ve highlighted four important questions to answer regarding operational issues of a business you’re looking to purchase.

What products or services does the company offer? It may seem like a no-brainer to most, but it is important to acquire an in-depth knowledge of the products or services of the company you’re purchasing. In many cases, the purchaser is well aware of the products or services because it is the products or services of the company that attracted the purchaser to the deal. The better...

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Mergers & Acquisitions

Due Diligence | Part 3 | Financial Issues

In last week’s post we discussed the legal issues surrounding due diligence. This week we continue our Purchase and Sale of a Business series and due diligence series by discussing some essential financial issues to consider during the due diligence phase of purchasing a business.

Avoid a Headache; Know the Financials In and Out The last thing you want to do is purchase a company with disorganized books and a lack of financial records. Not only will you spend time and money sorting out the books and reconciling the financial records, you’ll also likely inherit “surprise debt” or other financial liabilities. By taking the time to review the company’s books and learn more about its financial condition, you’ll avoid a headache or two...

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Mergers & Acquisitions

Due Diligence | Part 2 | Legal Issues

In the introduction to due diligence, we explained the importance of engaging in extensive due diligence prior to purchasing a business, and we broke down due diligence into six categories. Today’s post will highlight the key legal issues the purchaser should be aware of when purchasing a business.

Reviewing the Owner’s Governing Documents Prior to any acquisition, the purchaser will need to know the basic organizational structure of the business, i.e. how it was formed, its governing documents, and its key personnel. Knowing how the business is organized will dictate how the transaction will be structured.

Securities Matters Is the purchase going to be structured as a stock purchase? How many shareholders currently own stock in the company? Is there a shareholder agreement? Are...

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Mergers & Acquisitions

Due Diligence | Part 1 | An Introduction to the Series

“By failing to prepare you are preparing to fail.” This great Benjamin Franklin quote is a helpful point of reference for understanding why due diligence is so important  in the purchase and sale of a business. The buyer needs to make sure he or she knows exactly what he or she is purchasing. Due diligence offers the purchaser an opportunity to get to know the seller’s company and avoid being caught off guard by an undisclosed or undiscovered issue after the company is acquired. If the buyer fails to thoroughly complete the due diligence process, it is very likely that person will be disappointed in his or her investment.

The due diligence process allows the purchaser to identify the risks with...

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Mergers & Acquisitions

Purchase and Sale of a Business

The purchase and sale of a business is one of the most important transactions for business owners. We’re starting a blog series to let you know more about how the process of purchasing or selling a business works. As a side note, lawyers often call these types of transactions mergers and acquisitions, especially when referring to transactions involving extremely large companies. Mergers and acquisitions are essentially just the purchase and sale of a business but generally on a larger scale and with more moving parts.

We’re going to discuss the purchase and sale process from start to finish. For each post we’ll explain what’s at stake and how your lawyer can help you. For this series we have scheduled posts on...

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Business Startup

FINRA Fines NEXT For Inadequate Private Placement Due Diligence

The Financial Industry Regulatory Authority (FINRA) fined NEXT Financial Group for failing to perform reasonable investigations during the due diligence phase of the private placement offering by Provident Royalties. As a result of NEXT’s failure, investors lost hundreds of millions of dollars. NEXT will pay a $50,000 fine and $2 million in restitution to its clients. Furthermore, the SEC has accused Provident of committing fraud, and as least one of Provident’s brokers has admitted to these allegations.

As we discussed last week, due diligence requires a reasonable investigation of all the “material” facts before entering into any agreement with another person or entity. Due diligence is required and regulated in order to prevent unnecessary harm to investors. Typically, a broker is...

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Business Startup

Due Diligence: Questions to Ask Before Purchasing a Business’ Intellectual Property

An often overlooked part of purchasing a business is the transfer of intellectual property rights. Included in these rights is copyrights, trademarks, patents, and other non-disclosure rights. Today’s post details three basic questions you should ask before you purchase a business.

Can the business’ logo be transferred as part of the purchase? There are situations where even if the logo is transferable, you may not want to transfer it. If the logo infringes on the intellectual property rights of another business, you shouldn’t transfer ownership (since you would be liable for the infringement once you own the logo).

Furthermore, the logo may not be transferable if it is being used by the seller under a license agreement that does not allow for...

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