Selling a Business in Florida? 5 Essential Documents
Selling a Business in Florida? 5 Essential Documents
Selling a business in Florida, like a lot of an entrepreneur’s life, involves drafting and signing a lot of paperwork. Unfortunately, far too many business owners rush through these transactions. They don’t take the time to read and understand just what it is that they are agreeing to. Speeding through things increases the chance that a deal-breaking disagreement between the buyer and the seller. Below we have included five of the most common and most important documents involved in selling a business.
The Engagement Letter from Your Investment Banker
At its most basic, an engagement letter lays out the specifics of the working relationship between a seller and their chosen advisor. This allows each party to have a clear understanding of their responsibilities. At a minimum, the engagement letter should cover the following:
- A fee agreement establishing how to pay the advisor for their services. Usually, this involves a non-refundable deposit or retainer, as well as a success fee paid at the end of the transaction.
- The term refers to how long the agreement will be effective. Remember that this is a major process. Your advisor is doing a lot on your behalf, and they’re going to need more than a few days or weeks if they’re going to do things right. Heavily regulated industries can even expect their transactions to last for years.
- Don’t be surprised if you come across an exclusivity clause when reading over your engagement letter. Your advisor is dedicated to getting you the best deal possible. Exclusivity clauses exist to make sure that this loyalty and commitment is reciprocated. At the end of the day, agreeing to an exclusivity clause is your decision. Without one, finding an investment banker who wants to work with you will be more of a challenge.
- Finally, we come to the termination clause and the “tail.” These clauses lay out the steps that need to be taken to end the agreement. Usually, this involves advanced written notice. A tail refers to a period after the end of the engagement in which the advisor will still be able to collect fees in the event of a transaction. Tails mostly exist for situations where the seller goes on to make another transaction with a third party that they met through their advisor.
“The teaser” is perhaps the most critical document for selling a business in Florida. It’s important enough to have professionally drafted. Basically, a teaser is a document that outlines the investment opportunity for potential buyers. It is sent out “blind” – that is to say, without any information that could identify the company.
The idea behind a teaser for selling your business is similar to teaser trailers for movies; you want to provide something that excites and entices would-be buyers. However, that doesn’t mean that you should make your company seem more appealing than it really is. Quality teasers offer a comprehensive, honest overview of the business and the objectives of the sale so that everyone stays on the same page.
The Non-Disclosure Agreement (NDA)
Non-Disclosure Agreements, or NDAs, are another agreement that you might have come across before. At the very least, you’ve probably heard them mentioned in passing. When selling a business in Florida, NDAs serve the purpose of securing confidential business secrets, trade secrets, and other sensitive information between the buyer and the seller. Parties share many otherwise confidential documents during these transactions. You want to make sure that a would-be buyer won’t just use this as an opportunity to make off with your trade secrets, such as recipes or even your lists of past clients and vendors.
A properly-composed NDA explains the duration of the agreement, what is classified as confidential information, as well as what is to be done with that information upon termination of the agreement. Once a buyer signs an NDA, then it will be time for a confidential information memorandum – CIM for short – to be presented to them. The CIM contains insider information that will help give them a better understanding of the company so that they can decide if they want to move forward with the purchase.
Read more about NDAs here.
Letter of Intent (LOI)
Finally – a document that you won’t have to draft yourself as the seller! A letter of intent (LOI) is what the buyer will deliver to the seller after further reviewing the company up for sale if they like what they find. This is where the buyer will first propose the structure and terms that will govern the deal. It’s a good indication that the buyer is serious about making an offer, too. The specifics depend on the nature of the deal but usually entail the deal’s structure, the consideration, the desired timeframe, closing conditions, and requirements for due diligence. Much like the teaser you drafted earlier, a letter of intent facilitates understanding between the buyer and the seller.
The Purchase Agreement
It’s time for the purchase agreement. At this stage, you will almost certainly want the help of an experienced local attorney. Purchase agreements are important and binding, and you would do well to have the assistance of someone familiar with business law. It’s the end result of all the offers, terms, and other items that you’ve been negotiating over so far. Like all contracts, each and every purchase agreement should be tailor-made for a given transaction or deal. Your lawyer can help with this.
Common Purchase Agreement Provisions
- Define all key terms and phrases so that everyone can easily understand them. Poorly defined terms can result in confusion at best, and the outright collapse of the deal at worst! The purchase price, earn-outs, and purchase price adjustments should be similarly included and clearly defined.
- Representations and Warranties are mutual agreements between the buyer and the seller. You’ll want your lawyer’s help here to help protect you from any post-deal liability or other potential legal risks.
- Representations and Warranties are usually followed by the indemnification clause(s). This section lists the possible damages that could occur over the course of the transaction.
- Closing covenants are a bit like the restrictive covenants found in many employment contracts. The difference is that they govern the Seller’s actions before, during, and after the sale of the business. The main idea here is to keep the seller from doing anything that might mess with the established value of the company.
- Closing conditions set forth what each party must do for the transaction to be officially completed. This can include obtaining the approval of regulatory bodies or the consent of landlords, vendors, or other suppliers.
- For more details on business purchase agreements, head on over to our page here.
Looking to start a business or grow your current business? Contact FL Patel Law today by visiting our website or calling (727) 279-5037.