A few months ago, I received an assignment from an individual who had just acquired his third business. His first business was a retail store that was quite successful. He operated it for three years and then sold it for a profit. He took the proceeds from that sale and acquired a rental business. He operated that business for a number of years and even purchased the property it was on, which included a number of other buildings that he leased out. He eventually sold that business for a profit and proceeded to invest the entire proceeds, into a plumbing contracting business. With the first two businesses that he bought and sold, he dealt with sellers and buyers who negotiated in good faith and fair intent. In both cases, a common lawyer was utilized to avoid increased expenses to either party (this is something I am definitely against under any circumstances, it is penny wise and dollar foolish). After closing, in the first two cases, there were some discrepancies and disputes but they were resolved, without much effort and to both parties mutual satisfaction. The third acquisition, the plumbing contractor turned into a complete nightmare. This individual naively believed that he and the seller were using a common lawyer, but it turned out that the lawyer was representing only the seller and that meant that the buyer did not have any legal representation whatsoever. The agreements and documents were all drawn up to leverage the seller’s interests and any safeguards that are normally in a buy/sell agreement to protect the buyer were nonexistent. Every time a new discrepancy or dispute arose the buyer would say things such as; “it is not fair”, “that was not my understanding” and “that is not what the agreements say”, and I kept having to point out that it may not be fair, it may not be what you understood but it is exactly what the agreements say, and you signed them.

I cannot stress the importance of good, independent legal representation when acquiring a company. Just because you may have been successful previously without legal council does not mean that you will be successful every time. An analogy would be that you have driven for twenty years without having an accident, hence you may as well cancel your car insurance. Having a good lawyer is the same as having an insurance policy, you hope that you will never need to fall back on the safeguards placed in any of the agreements because of an attorney’s efforts, however you will be very thankful that they are there if you ever do need to utilize them.

When choosing a lawyer, do not forget the old adage that you get what you pay for. If one lawyer charges you $100 an hour but takes 10 hours to do the same thing as a lawyer who charges $150 an hour but only takes 5 hours to do the same amount of work, which way are you better off?

Lawyers are specialists, they all have their areas of expertise, do not hire a real estate lawyer to provide legal expertise on your business closing agreements and documents. After all, you wouldn’t go to a podiatrist for heart surgery, yet they are both qualified doctors!

There are other advantages to using a qualified lawyer:

• A lawyer can be the intermediary in a tough area of negotiation. If you have to deal directly with the seller, you may develop animosities towards one another during the acquisition stage. If you then need to have contract with the seller for a period of time to transfer his inherent knowledge of the business and/or to train you in its operation the animosity developed during the negotiation stage may make an on-going relationship very strained.

• Having your lawyer request the list of due diligence material required places a buffer of what might be considered pettiness.

• If you are comfortable with doing the due diligence on the business on your own that is quite acceptable. You may still want to have your lawyer request the information on your behalf.

• It is best to have your lawyer do title searches, to confirm that there are no liens or chattels on the assets. Your lawyer can also check for outstanding lawsuits. He can also ensure that corporate, sales and withholding taxes have been paid to current dates.

• The lawyer is the best individual to determine that the articles of incorporation are valid, that any dba’s (doing business as) and/or fictitious names are valid, that the bylaws allow the business to operate and be sold in the manner that is being negotiated and that the minute books are up to date.

• You may want your lawyer to verify that the wording within any contracts that the current business has with vendors and/or customers allows them to be assigned or transferred to new owners. Many contracts contain clauses that do not allow the contracts to be transferred or assigned without the consent of all parties.

  If there are customer or vendor contracts that have to be renegotiated, I highly recommend that you renegotiate them, not your lawyer. You are the person who will have to deal with the other party, now is the perfect time to introduce yourself.

• Should your investment require a partnership agreement then your lawyer is the best person to draft it. Your lawyer will ensure that as many safeguards as possible are placed within the agreement.

• When entering into the acquisition of a business it is wise to determine what happens to the ownership of the business should something happen to you. In other words, it is time to update your will.
  

Always remember that a lawyer is there to give you legal advise – not business advise. If you need business advise then contract with a business consultant.