ANNAPOLIS LAW

THE LAW OFFICES OF

   DOUGLAS CLARK HOLLMANN

BUSINESS LAW

DO YOU WANT TO START A BUSINESS?

If you are starting a business, you should talk to us first

• Whether You Should Incorporate Or Not

• Whether You Should Use The Corporate Form Or A Limited Liability Company

• Which State You Should Incorporate In
• What Corporate Form Will Save You Expenses

We Can Set You Up With All The Necessary Forms For Operating Your Business

If You Already Have A Business, We Can Help With Questions About Operation

If You Have A Cause Of Action, Or Have Been Sued, We Can Go To Court For You

If You Are Thinking Of Selling Or Buying A Business, We Can Help You

ARE YOU BUYING OR SELLING A BUSINESS?

Businesses are bought and sold using one of two methods:  either the purchaser buys the stock of the corporation or the purchaser uses a new entity to buy the assets of the corporation.  Of the two methods, the stock purchase is much simpler but leaves the new owner with the existing liabilities. Consequently, most purchasers buy the assets.

Stock Purchase

In this situation, an agreement is drawn up in which the owner(s) of the selling corporation agree to sell their stock to the purchaser.  If there are no security problems (this is a complicated subject usually not involved in the sale of small businesses) the shares are transferred to the new owner who takes over the business.  If security is required for future payments, the shares may be escrowed with an attorney pending final payment of the remaining price.

The advantage to the parties is that this method requires no changes in licenses, tax id numbers, employment contracts, or credit arrangements with suppliers.  The disadvantage is that if there are any pending liabilities out there, the new owner inherits those as well.

Asset Purchase Agreement

An asset purchase agreement is much more complicated and get involve a great deal of negotiation. However, in a business which may have potential liability problems, it is the only way to go.

The parties have to clearly identify what is being sold.  Telephone numbers, or lease rights, can be valuable assets.  Non-compete provisions are common.  In addition, the parties may have to comply with the bulk sales act which requires that a business notify creditors of the sale of its assets or the buyer gets stuck with any unpaid bills.   Sales tax is due on the assets being sold (except for goodwill).  The agreement must specifiy who is going to pay this tax.  There may also be recordation taxes if there are leases involved and other property.  Security agreements may be necessary if there is an installment payment plan.  Because of these complications, asset purchase agreements can take time to bring from initial contact to settlement.

Asset purchase agreements can also specify that the seller corporation (which will be left with few if any assets) shall change its name after the sale, thereby freeing up the existing name for the purchaser to acquire by amending its name.  Once the dust settles, the sign on the door is the same name as the old corporation but the owner is a new corporation.  This way the purchaser gets the benefit of the goodwill contained in the name but none of the liabilities associated with the old corporation.

If you intend to buy or sell a business, contact us as soon as you decide to do so.

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