Buying or selling a business can seem like a daunting task. Business owners are often neck deep in the operations of the business and may not have thought about details that should be addressed to maximize the business value. The buyer, on the other hand, may be interested in owning a business, but not know where to start. These issues are common and engaging a team of professionals (which may include a lawyer, an accountant, a business broker, and a banker) will be beneficial to both the buyer and the seller of the business.

A lawyer experienced in mergers and acquisitions (M&A) will be able to help their clients understand the big picture while working through the details. This whitepaper provides an overview of several common stages of a business transaction.


Often the first document agreed to and signed by a potential buyer and a potential seller is a confidentiality agreement. This agreement protects the seller from unfair competition if the purchaser does not follow through with the transaction. Without a confidentiality agreement, the prospective purchaser could take all the knowledge it learns about the seller, refuse to close on the transaction, and unfairly compete with the seller.


At some point after the confidentiality agreement is signed, and likely continuing up until nearly the moment of closing, the purchaser will perform “due diligence.” In layman’s terms, this means that the buyer has an opportunity to “kick the tires”, ask questions about the company, review financial statements, evaluate employee matters, and otherwise learn everything that it can about the business. Frequently it is helpful for the purchaser and their attorney to review a due diligence checklist together and delegate responsibility.


Unfortunately, many buyers and sellers enter into a letter of intent without spending much time thinking about it. This is likely to lead to headaches down the road. A well drafted letter of intent will lay out the big picture terms of the proposed transaction and set forth the framework for the purchase agreement. While a letter of intent does not need to be long in most circumstances, making sure it is complete can avoid delays, hard feelings, and additional costs as the transaction progresses.


As due diligence progresses and the buyer becomes more certain that it desires to purchase the business, the parties will need to agree to a purchase agreement. The purchase agreement will contain the terms of the deal, document the seller’s representations and warranties, provide a framework for indemnification, and establish a timeline for closing. It is typical to attach schedules and exhibits to the agreement – these are often longer than the purchase agreement itself. The complete purchase agreement, together with schedules and exhibits, can look daunting, but experienced counsel will help simplify the process of preparing and negotiating these documents.


The simplest way to financing a business transaction is for the purchaser to pay in cash. Frequently, however, this is not possible and bank or seller financing (or a combination of both) is necessary. When bank financing is required, the letter of intent and purchase agreement should include contingencies for the bank’s approval. If there will be seller financing, the parties will need to document the loan and discuss what security will be available to the seller if the buyer defaults.


In an ideal world, all of the negotiating, rushing, and documenting takes place prior to closing and the closing simply becomes a meeting to transfer papers around the table for signature – and to deliver payment, of course. If, however, loose ends remain, negotiations may need to occur at the closing table.


The closing is not the end of the process. Frequently, there are certificates that need to be filed with the State of Michigan, liens or discharges to be recorded, tax clearance certificates to be obtained, etc. Since, the buyer is now running the business, it is important to have experienced advisors available to help with these post-closing matters.

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