There’s no denying that Nevada provides a great environment for businesses to thrive, so it’s no surprise that it’s often referred to as a magnet for start-ups and entrepreneurs who are eager to find success in the competitive world of business. If you’re looking to start your entrepreneurial venture by buying a business here, or if you plan on selling your Nevada based company in search of other business opportunities, exciting times await you.
However, the process of selling or buying a business can prove complicated, especially if it’s your first experience of this kind. If you find yourself in any of these situations, it’s important to prepare yourself thoroughly before you proceed. Therefore, you should familiarize yourself with the legal steps that are required for selling or buying a business in Nevada. Here we’re going to provide you with some basic information on Nevada business sale and purchase, so you can navigate the process with ease.
Types of agreements
Before we move on to the steps you should follow, it’s important to understand what your options are in terms of purchase and sale agreements. There are two methods used to transfer ownership of a business, as follows:
Asset Purchase Agreements (APA)
Asset Purchase Agreement refers to an agreement in which the buyer purchases assets of the company he’s interested in from the seller instead of buying stocks. This comes with a set of challenges such as inventory, the condition of the assets that are being transferred, receivables and debts etc.
Stock Purchase Agreements (SPA)
The other method of transferring ownership is by purchasing stocks from the shareholders of the company that is being sold. A lot of buyers tend to avoid this method because they don’t want to pay taxes or deal with legal liability issues.
In some cases, buyers will ask for a special provision when drafting the agreement, ensuring that the seller won’t take any action to compete with the business after the sale is finalized. The terms and conditions of these non-competition provisions are usually established by the parties during negotiations.
The steps you need to take when buying or selling a business
If you’ve decided you want to buy or sell a business in Nevada, you must be aware there are certain legal aspects that need to be addressed in order to close the deal. Although deals differ from one another, the legal steps you have to follow to finalize a transaction successfully are the same. Here’s what you should know:
Contact a business lawyer
Selling or buying a business is without a doubt a complicated process, one that usually comes with a lot of stress and challenges. It can’t be expected from a buyer or seller to know all the intricacies of the procedures and the legal steps one should follow in such situations. That’s when business lawyers come into play, to assist you throughout the entire process and make sure you comply with Nevada state laws.
Non-Disclosure Agreement (NDA)
Before the buying and selling process gets underway, it’s recommended to have a Non-Disclosure Agreement (NDA) in place. This will ensure all discussions between the parties and the details or the negotiations are completely confidential and will remain so, regardless of the outcome. The document provides an extra layer of protection and ensures peace of mind for everyone involved.
Letter of Intent (LOI)
The buying or selling process starts with signing a Letter of Intent (LOI). This document represents a non-binding agreement between the parties that includes the basic terms of the transaction such as purchase price, due diligence, transaction structure, and other terms regarding purchase and sale. The LOI serves as guidance for the steps that follow next in the process and ensures good faith in the actions taken by the parties so far.
Due diligence refers to all the actions the buyer needs to take in order to ensure everything is in order with the business they’re planning on buying, and they won’t face any issues when closing the deal. It’s a thorough examination of all aspects of the business, from financial records, customer and sales reports to leases, loans, contracts etc. Proper due diligence keeps the buyer safe from potential liabilities in the future and also protects the seller as proof of honesty and transparency.
Drafting the agreement
Once the buyer has performed due diligence and decided he is willing to move forward with purchase procedures, the next step is drafting the purchase agreement. Normally, lawyers will take up the task of creating the agreement, usually ones with extensive experience in business law such as https://www.raichattorneys.com/. This can be done either by the buyer or the seller, and it should include all the terms and conditions of the sale/purchase. The purchase agreement is a binding contract, so the buyer is bound to purchase the business based on the terms detailed in the document.
Both parties should agree upon the payment method of the transaction. Ideally, the buyer should be able to pay in cash, making the process a whole lot easier, but if that’s not possible, he’ll probably look into other financing options. It’s up to the seller to decide which type of payment he’s willing to accept.
Consents and approvals
Before moving on to the final stage of the transaction, particular attention should be paid to the consents and approvals needed in order to finalize the deal. If the due diligence was conducted properly, the buyer should have a list with all the consents and approvals he has to obtain prior to closing the deal, so he can avoid legal issues down the line such as penalties or cancellation of the contract.
When all previous steps are finalized, the parties can close the deal and transfer ownership of the business. The buyer will deliver the payment that was agreed upon and the seller will deliver all the documents that grant the buyer ownership of the company. After the necessary documents have been signed, the transaction is finally over and the parties can celebrate the closing of the deal.