Purchasing a new business can be an exciting prospect. However, it is also a complicated one.
“The Asset Purchase Agreement is the most important tool for making sure a business buyer not only gets the assets to operate the business but also gets protection against undisclosed surprises that might affect the business’s value.”
Business Attorney Trevor Brewer
If you are considering a business purchase, it’s a good idea to consult with an experienced mergers and acquisitions lawyer. They can advise you in seeking a business to purchase, negotiating the purchase agreement, and getting your business up and running.
In the meantime, here are some basic things you should understand about Florida purchase agreements to buy a business.
1. What Is an Asset Purchase Agreement?
An asset purchase agreement is a contract for the sale of a business or specific business assets. These are complex business agreements that can take time to negotiate and finalize. Typically, parties to a business asset purchase agreement in Florida engage attorneys to negotiate on their behalf.
2. What Does the Asset Purchase Process Look Like?
When purchasing a new business, there are several steps to complete. Your purchase agreement will typically provide deadlines for completing each of these tasks.
Purchase Agreement
The first step is to negotiate your asset purchase agreement. This can involve several offers and counteroffers. Your attorney can help you negotiate the finer points of the agreement. We discuss many of these in further detail below.
Earnest Money
Typically, the buyer will need to deliver earnest money immediately after signing the asset purchase agreement. Earnest money is typically 5–10% of the purchase price. But the parties can agree in the contract to any fixed amount or percentage.
Seller Disclosures
Soon after finalizing the agreement, the seller typically must provide disclosures regarding important aspects of the business, such as:
- Business assets and real property;
- Intellectual property rights;
- Stockholders;
- Subsidiaries;
- Employees and employee benefit policies;
- Insurance policies;
- Outstanding debts;
- Ongoing legal action;
- Permits and licenses;
- Past business performance; and
- Financial operations.
Further, the seller must warrant that the representations are true.
Due Diligence
Next, the buyer has an opportunity to perform due diligence. This allows the buyer to investigate the claims and disclosures the seller has made. They also have the chance to ask any questions and perform physical inspections of property, equipment, and other assets.
Financing
If the buyer does not rescind the agreement after receiving the disclosures and completing due diligence, the sale can move forward. If the buyer will be financing the purchase, they will then have some period of time to obtain a loan commitment from their lender.
Closing
With financing secure, the parties can now schedule a time to close on the purchase agreement. At closing, the buyer will deliver the agreed funds to the buyer. The buyer will deliver any necessary documents, keys, and property to the seller.
3. What Are the Essential Terms of an Asset Purchase Agreement in Florida?
Every asset purchase agreement in Florida should specify:
- The parties to the agreement;
- The purchase price;
- What assets are included in the sale;
- What assets are excluded from the sale;
- Representations and warranties; and
- The timeline for completing individual tasks as well as finalizing the agreement.
You can find template agreements covering these essential items as well as some boilerplate terms to get you started. However, it’s important to tailor your agreement to your specific needs. Simply filling in the blanks on a generic asset purchase agreement is unlikely to sufficiently protect your interests.
4. What Things Should You Consider Including in Your Business Asset Purchase Agreement?
There are a number of important issues you should consider addressing in your asset purchase agreement. Since each business is unique, the terms of your agreement should also be individually crafted to meet your needs. We discuss some common terms below, but your attorney can advise you of additional terms that might be important for you.
Non-Compete and Non-Solicitation Agreements
If you are buying a business, you will likely want to include non-compete and non-solicitation agreements in the purchase contract.
Non-compete agreements must be reasonably limited in time and scope. The agreement should specify:
- The type of business the seller is restrained from operating;
- The geographical area of the restriction; and
- The length of time that the restriction will continue.
Florida law presumes that a non-compete restriction against a seller is reasonable if it lasts less than three years. But depending on the circumstances, restrictions lasting as long as seven years may be enforceable.
Non-solicitation agreements are also important. They can be drafted to prevent a seller from poaching either your clients or your employees.
Without comprehensive and clear non-compete and non-solicitation terms, there are many things the seller can do to undermine your new business. They could start a competing business down the street or lure away your prospective clients, which could ultimately spell the demise of your business.
Escrow Hold Back
Typically, an asset purchase agreement in Florida will include indemnification provisions. These require the seller to reimburse the buyer for any losses resulting from the seller’s previous operation of the business. For example, if the buyer has to settle a breach of contract claim based on events that occurred while the seller owned the business, the seller would be responsible for the costs of the settlement.
When you negotiate your asset purchase agreement, you can request an escrow hold back. This type of provision requires part of the proceeds from the sale to remain in escrow for a particular period of time after the sale is final. If an indemnification claim arises, those funds are then available to compensate the buyer. It helps to guarantee payment from the seller on their indemnification obligations.
Seller’s Continued Role in the Business
You may want to include terms in your purchase contract relating to the seller’s continued involvement in the business.
In some cases, you may keep the seller on as an employee to operate the business. In that situation, you may consider a separate employment contract.
In other cases, you may simply need assistance from the seller to ensure a smooth transition. For example, the contract may require that they help you obtain necessary permits and licenses to continue operating the business. Or it may require the seller to spend a certain amount of time training the new buyer on business operations, providing introductions to clients, etc.
5. Do You Need an Attorney to Help You with Your Florida Purchase Agreement?
Asset purchase agreements are complex contracts that you do not want to tackle alone. Especially if the other party has legal representation, you will be putting yourself at a distinct disadvantage if you try to negotiate on your own.
An attorney can help you with every stage of your asset purchase transaction. They will review your contract and make sure that it includes the specific language you need to protect your interests.
Contact BrewerLong
The business attorneys at BrewerLong are well versed in all aspects of business law. We are equipped to help business owners and prospective business owners through every stage of their business’s development. We have been serving the Orlando business community for over a decade, and we can help you too. Call us today or contact us online to set up an initial consultation.
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