The Sale of a Business and Real Estate
It is not uncommon for a business owner to sell, at the same time to the same buyer, a business and the real estate in which the business is based. In other words, the business owner owns the business and the real estate in which the business is based. Often, to save legal fees, a business owner will want to have one purchase agreement that includes both the sale of the business and also the real estate in which the business is based. This is rarely advised.
Generally, in this type of situation, you will want to have one purchase agreement for the business and a separate purchase agreement for the real estate. The reason is because it provides the business owner with the most protection, which is generally the goal of the business attorney.
Having two separate agreements allows the business owner to maximize their tax advantages and narrows potential issues that could result in future litigation. Regardless of the type of purchase agreement, a prudent business owner will want to be working closely with their accountant to determine the best way to maximize their tax advantages. It is common for the buyer to want a different tax allocation than the seller. Regardless of the negotiated agreement on the tax allocation, you will want that negotiated agreement to be clearly defined in your purchase agreement with the requirement that each party must abide by it when they file their taxes.
Minimizing the potential for future litigation is essential. That can be best accomplished by having two separate agreements – one for the purchase of the business and the other for the purchase of the commercial real estate – as not all provisions regarding the sale of a business apply to the sale of the commercial real estate and vise versa. It is prudent that the business owner is exact as to the assets that are included in the sale and the assets that are excluded. For example, while it seems like unnecessary additional work to list out with specificity equipment that is included in the sale, the itemization of the equipment is essential. It is also important that the business owner clearly understands whether or not accounts receivable, insurance proceeds, deposits, inventory, bank accounts, refunds, warranty work, noncompete agreements, employees, independent contractor agreements, contracts, leases, etc. are included or excluded. Each business has distinct assets that it owns. Therefore, the business owner needs to work closely with their accountant and their attorney to make certain that all assets, whether they are included in the sale or excluded from the sale, have been detailed with specificity. This will minimize any surprises when the business owner assumes that the business bank account is not included in the sale, but it was not listed under the excluded assets, for example.
Keep in mind that the goal of each agreement is different. The business purchase agreement focuses on the assets and the liabilities. The real estate purchase agreement focuses on clear title and environmental issues.
Spangler and de Stefano, PLLP assists business owners is the sale of a business and the real estate in which the business is based.
The material contained herein is for informational purposes only, and is not intended to create or constitute an attorney-client relationship between Spangler and de Stefano, PLLP and the reader. The information contained herein is not offered as legal advice and should not be construed as legal advice.