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Buying a business: how to avoid the legal pitfalls

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Buying a business: how to avoid the legal pitfalls

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Click here to find out more about the potential pitfalls involved in buying a business, and how to ensure you stay on the right side of the tracks.

Buying a Business: How to Avoid the Legal Pitfalls

It wonít surprise you to learn that buying a business is a major undertaking Ė and thatís before you even bring into the equation the difficulties of ensuring continuity, reassuring members of staff or existing customers, and keeping the business profitable during a major change.

The right corporate solicitors will be more than capable of guiding you through this process and ensuring you donít make any costly missteps that could drastically change the outcome of the deal youíre making. Nevertheless, it pays to know how to avoid any significant issues. Read more below.

Implement NDAs From the Beginning

The process of purchasing a business Ė and particularly doing your due diligence Ė inevitably means that a number of sensitive details will need to be made available. If you want to be fully cognizant of aspects like the businessís financial performance and workforce, then exchanging this information is simply unavoidable.

The best way to protect your interests Ė and the interests of the business youíre looking into Ė and, ultimately, to prevent any relationships from turning distrustful or sour is to introduce a non-disclosure agreement from the very beginning.

At the very least, this can prevent your potential interest in the business from becoming common knowledge before youíre ready to make an official announcement.

Donít Underestimate the Importance of Heads of Terms

Heads of Terms arenít legally binding documents, so they donít impose any legal obligations on either party, but they can prove pivotal down the line if one party attempts to change the structure of the deal. Even from a moral standpoint, they express a strong commitment to the deal as youíve agreed to it, and that offers some much-needed clarity and peace of mind as the deal moves toward the closing stages.

This is, of course, something your lawyer will help you to create. Itís risky to overlook the importance of this document, given its ability to protect your interests now and further down the line.

Do Your Due Diligence

Due diligence isnít a formality Ė but, at times, it can be treated as one, particularly if the two parties involved in the sale are on particularly good terms. Like a home inspection prior to a property sale, due diligence is there to uncover any issues that could drastically impact the value (and advisability) of the deal youíre about to enter into. It shines a light on the dark corners and identifies the potential cracks in the foundations.

Even if due diligence uncovers something significant, it doesnít have to mean the end of the deal entirely Ė it may just grant you more negotiating power and make the deal far more profitable for you.

Donít Forget About Third Party Approvals

Some deals canít go ahead without the necessary third-party approvals, and overlooking this step could land you in major legal trouble. If you think your business purchase needs attention from, say, industry regulators, then talk to your solicitor as soon as possible. If not, youíre just putting yourself, the deal, and the business at risk.

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