Buying and Selling Businesses in Wichita

Types of Transactions

Each transaction is different. But, the purchase or sale of a business typically falls into one of the following three categories: 1) asset purchase, 2) stock purchase, or 3) a merger. Each type of transaction has different considerations. 

Asset Purchase

An asset purchase occurs when the purchaser buys another company’s assets without buying the company itself. This transaction is easier than a stock purchase and helps the purchasing company avoid assuming the selling company’s existing liabilities.

For these reasons, an asset purchase is typically the preferable way to structure a business sale. The buyer can pick and choose what assets to buy. Typical assets include inventory, vehicles, equipment, real property, accounts receivable, existing contracts, customer lists, trademarks, and patents. With the flexibility to decide what assets are purchased, buyers and sellers can often negotiate more easily. A buyer can also not buy any of the company’s liabilities, requiring the seller to assume responsibility for all existing liabilities explicitly. An asset purchase agreement also allows the buyer to choose whether to hire any of the company’s existing employees.

Stock Purchase

A stock purchase occurs when a seller sells its shares of a company’s stock to a buyer. A stock purchase differs from an asset purchase in that in a stock purchase, the buyer steps into the seller’s shoes. The buyer becomes the new shareholder of the existing company and everything that comes with that company, such as inventory, equipment, and employees. 

Because the buyer assumes all liabilities, buyers may be wary of this transaction. But proper indemnification language in a contract can help protect the buyer. Davis Business Law’s Wichita transaction attorneys can help protect you in such a circumstance. 

With a stock purchase, employees typically stay in place and remain employed by the same employer (the purchased company). In addition, contracts and assets belonging to the existing company can generally be transferred to the stock purchaser.

Using a stock purchase can result in a seamless change of ownership. By all appearances to the customer or consumer, the business continues to operate without change, even though it is under new ownership and management. 

Merger

A merger is when two businesses join together to become one. It generally involves a merging of both companies and cultures. A merger typically involves a surviving company that assumes all the assets of the disappearing company. In exchange, the surviving corporation typically gives the shareholders of the merged company shares in the surviving company. 

Mergers can be valuable tools to streamline two existing operations efficiently. Duplicative assets, if unnecessary, can be sold, streamlining the operation. 

Closing The Deal

The first thing a company should do when negotiating the purchase or sale of a business is to consult with a business attorney and accounting professional. The experienced Wichita business attorneys with Davis Business Law have the experience to guide you through your transaction. 

The next formal step the parties should take after coming to a meeting of the minds on the deal is to prepare a letter of intent. This letter will address the broad aspects of the agreement, things upon which the parties agree in principle. While a letter of intent is generally non-binding, it provides some measure of security that the parties are serious about completing the transaction rather than casually backing out.

After a letter of intent, the parties should generally obtain non-disclosure agreements to protect themselves from improper disclosure of private information. The rest of the transaction requires the free flow of private business information, which could give a competitor an advantage.

Next comes a formal agreement, conditioned upon a due diligence stage. In due diligence, the selling business comes under scrutiny. The buyer should examine the purchased company’s assets, liabilities, employees, and accounting.

Finally, there is a closing, in which the company or its assets formally change possession, so long as certain conditions in the sale agreement are met. Even after the sale, contracts can also require the seller to provide aid and assistance during a transition period or the seller to warrant assets for a time. 

Protecting Your Interests

Each business transaction is different and has a unique set of challenges and potential pitfalls. The experienced Wichita business attorneys at Davis Business Law have seen what problems arise, and they can help you prevent them. If you are thinking about buying or selling a company – congratulations! But please give us a call at (316) 252-2291 or contact us online to help you protect that exciting new adventure.