The vast majority of clients at The Center for Financial, Legal and Tax Planning, Inc. are amazed and also overwhelmed by the level of detail involved when it comes time to sell their business or purchase a new one. Whatever the reasons you have for deciding to buy or sell, a simple handshake will not do. There is a wide range of considerations to be made with the sale or purchase of a business. In this article we will provide some basic guidelines to consider when it comes time for you to buy or sell, including legal issues, document considerations and tax aspects of the transaction. The legal area is often the broadest area of concern, where many hazards and snares may be lurking for a buyer or seller.
Shareholders have rights.
Aside from some obvious rights like distribution rights of profits and liquidations, a shareholder may have a right to preserve his or her portion of ownership in the business. If additional shares are issued for the purchase of another business, the total number of outstanding shares increase, thus diluting the original shareholder's interest. This right to protection from dilution of interest is often in the context of a public company. Accordingly, an agreement to acquire another company may require approval of all shareholders before any additional shares can be issued to the stockholders of the target company. This question is often settled by how the buyer and seller structure the transaction.