Benefits of Using a Corporate Attorney in a Sales Transaction

In the ownership of a company there are few things as important as its sale.  Selling a business gives the seller the opportunity to monetize decades of hard work and will hopefully result in the seller receiving a significant amount of money.  While the seller and the buyer may determine how much the buyer is willing to pay for the business, there is no assurance that the seller will actually receive the entire sale price – without a detailed and enforceable Sale and Purchase Agreement. 

Both parties’ understanding of the deal structure and terms are documented in a transaction agreement that allocates risk between the buyer and the seller. The buyer will ask for certain promises about the historic facts and operations of the company  (Representations and Warranties).  A buyer is likely to ask for certain commitments or assurances about the short and medium term post-closing performance of the business (Covenants).  Also, a buyer may ask the seller to defer a portion of the purchase price based upon the performance of the business following the closing (an Earn-Out).  

Within the sale agreement there are customary market terms for each provision. Counsel that does not regularly represent parties in these transactions is unlikely to be aware of market terms.  This lack of familiarity may delay or destroy a transaction, or worse, result in the seller not receiving the purchase price.  When selling a business, it is best to retain those most qualified for the task and not rely on local counsel, who may be cheaper, but could ultimately cost the business owner significantly more by failing to properly protect its interests.

Sellers that rely upon local counsel in a sales transaction may not be able to negotiate advantageous terms or fully protect the payments due from a sale. Often the local counsel has a long-standing relationship with the seller and has helped them with a variety of commercial, real estate or even personal transactions.  However, each of those transactions are very different than the ultimate sale transaction. 

It is not unusual for complicated tax planning to be necessary to minimize the amount of taxes that a seller will pay when the business is sold, thereby increasing their net proceeds.  By utilizing a firm with transactional and tax specialists, the seller’s ultimate costs will be lower because the transactional and tax counsel can structure a deal in a manner to achieve these objectives.  Additionally, many businesses may have intellectual property, real estate or environmental issues that need to be addressed in a sales agreement.  Rather than finding appropriate specialists for each area, a large institutionalized law firm can offer qualified experts to assist with these areas, which pose their own unique risk to the seller.