Guess what, it really matters to have a great attorney when you are selling your business. Let me explain.
I wrote before about my involvement in typical buying/selling business transactions; it’s an old post, but it has not changed, see “Buying a New York Business”. As you can see from that post, the legal documentation required for a business sale can be substantial. It is crucial that it all fits together and there are no inconsistencies or careless mistakes.
There is the Asset Purchase Agreement, or the Stock Purchase Agreement (depending on the structure of the sale), numerous exhibits to those agreements, promissory notes, security agreements (to secure the installment purchase price), guaranties, bills of sale, consulting agreements (if seller stays on for some time) and others. These documents can be many pages long.
I have seen many parties gloss over the details (including attorneys), not think through all the worst case scenarios and not be concerned with precision. This can be very costly. More than once, I have dealt with business transactions (where I was not the attorney) where a little more attention could have saved the seller of the business hundreds of thousands in legal fees. The situation is usually as follows:
The sale of the business closes. Buyer may or may not have bought a great business. For some reason, the business does not do as well as hoped or the buyer has buyer’s remorse for any number of other reasons. What will the buyer do? March into his lawyer’s office and ask “how can I get out of this?” And the lawyer will go through the agreements and documents with a fine tooth comb to find any loophole he can use to renegotiate the deal or even sue. When there are three or more agreements that need to fit together and be consistent it is not that difficult to find something….if….a careless attorney represented the seller in the first place.
For example, the careless attorney could have drafted a broad and imprecise definition of the assets being sold. You may think, how is that possible? It is, especially when the assets are not that easy to identify, which is the case with certain intellectual property. Are we selling the entire IP or only parts of it, what parts? Are we giving a license to what we are not selling? Then if there are numerous provisions relying on that first definition, in numerous documents, you can get dizzy very fast. The attorney who has anything less than a laser focus on these issues will make mistakes. Anything that has to be clearly defined, narrowed or specified is a potential problem.
Another pet peeve of mine is the rushed closing. The closing is the last step in the selling process. The parties and their attorneys get together to exchange money and property and take care of all the remaining paperwork. Often in the middle of a closing, the opposing attorney wants to make changes and says “let’s just throw it into a side letter” and then they start dictating to their secretary. This is a minefield for mistakes and oversights. I know people want to get stuff done and move on, but you may pay the price later. I like to go into the closing prepared for any such scenarios and not have to make last minute rushed changes.
Lawyers get trained and paid to be a little paranoid. They have to foresee the worst case scenario, in the interest of the client. If they are good at that, they are providing a great service to the client. Of course this has its limits. The lawyer’s paranoia cannot be so profound that it gets in the way of making the deal happen. Great lawyers know how to strike a balance.
Finally, somewhat unrelated, the folks over at Biz Buy/Sell have an incredible resource for the business seller. A whole free book explaining the process of selling your business. I read it over again recently and highly recommend it when you are starting the process of selling your business. But since their SEO is probably better than mine, you may have already found it.