Expanding your business can be a daunting yet exciting milestone for your business. While there are many means of expanding your business, one common way of doing so is buying or acquiring another business that you think will compliment the current state that your business is in. While you might have already thought about the company you would like to merge with, a couple of complicated tasks need to be taken care of such as coming up with an acquisition agreement.
Acquisition agreements need to be precise and accurate as they are legally enforceable and can be used as evidence in court should something bad come up during the turnover of the business. This is why we have a couple of tips as well as sample agreements in PDF that would be a good source of information. They can all be found below, so you have to make sure that you read through this article. Now, keep scrolling!
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What Is an Acquisition Agreement?
Basically, an acquisition agreement is an agreement between two parties that helps to administer the purchase of one company by another company. It is usually comprised of more documents that helps to settle and prove the sale. Should you decide to acquire another business, you want to make sure that you secure an acquisition agreement that has been reviewed by an attorney with an expertise on the matter. This will also help to protect your interests and the interests of the party that will sell their business.
You can find more details about business selling in Business Sale Agreement Samples and Templates.
Drafting an Acquisition Agreement
Coming up with your very own acquisition agreement can be pretty overwhelming especially if this is the first time that you are going to come up with one. We would like to help you out by giving you a couple of tips and guidelines on how you can come up with one.
Start with the Negotiations
- Hire an attorney. Merging your business with another business can be quite a complicated task, so you want to make sure that you consult with an attorney to ensure that you have everything covered from the requirements to how the wordings go in your document. This means that every step of the way, you will have good guidance and you have assurance that everything will go smoothly as planned.
- Get in touch with the business. This is one of the first steps that you should do when it comes to wanting to merge with another business. You want to make sure that everything has been thoroughly discussed and that the decision will bring more benefits rather than disadvantages.
- Prepare a non-disclosure agreement. A non-disclosure agreement will help to ensure that what has been discussed by the parties involved will not be discussed with those who are not involved. This will also help to determine the scope of confidentiality regarding the acquisition.
- Prepare a letter of intent. A letter of intent will establish the intent of the parties to enter the agreement on their own free will. It also outlines what information has been shared as well as the purchase price of the business. It will also outline any restrictions such as selling the business to another entity for a certain period of time. Our article on Letter of Intent Formats will help you with ways for properly formatting your letter of intent.
- Practice due diligence. You want to make sure that upon purchase or turnover, everything regarding the finances of the business to be bought are free from problems or that problems are manageable. A thorough examination of the assets and liabilities should be properly conducted.
Drafting the Agreement
- Define your acquisition model. You have to define what type of acquisition model you are going to use—asset purchase or entity purchase. Entity purchase means that you are going to be acquiring the whole business or the majority of the business’s assets whereas with asset purchase, you only acquire a certain portion of the assets.
- Start negotiating the purchase. Due diligence can result into two things: the buyer pushing through with the merger or walking away from it. If moving forward with the purchase is the choice, the draft of the agreement should be prepared and given to the other business for review and suggestions.
- Payment methods. The payment structure should also be determined unless the buyer will buy the other business outright, which rarely happens. So make sure that payment modes, amount to pay, and other information regarding payment should be discussed thoroughly. You have to come to a reasonable payment structure to ensure that you do not miss any payments. Make sure to include provisions regarding installment payments and if promissory notes will be valid.
- Start drafting the outline of the agreement. Make sure that you structure your agreement in a way where it will be clear for the parties involved. The agreement format basically contain the following sections:
- The introduction which will include a brief introduction about the parties involved and what the transaction is all about
- Definition of terms used
- Agreement statements regarding closing the deal
- Start the introduction and definition. As mentioned, the parties involved, the transaction, and the type of sale should be outlined in the introduction of the agreement. This will help to make everything a little bit clearer and will also establish what the agreement is for. Make sure that definitions should also be included in the introduction.
- Structure of the transaction. This is where the price, payment mode, and adjustments to the purchase price of the transaction would be established. This is also the section where financial reports to the IRS will be discussed.
- Discuss the warranties. This section will be taken care of by seller. This is the section that will discuss all the facts that the seller has shared to the buyer regarding the business being sold.
- Prepare the closing agreements. This section will discuss what the obligations of the buyer and seller are with regards to this transaction. Once everything is ready for closing, paperwork should also be prepared. The documents that you would need to prepare are the following:
- Legal bill of sale
- Existing agreements that will be turned over
- Lease information
- Resignation of directors (if applicable)
- Affix the signatures. Once everything is set, the agreement should be signed by the parties. The date when the document was signed should also be indicated.
Preparing the Other Documents
- Transfer title. The transfer title should be included for this transaction to ensure that the transfer will go as smooth ass possible. This will include transfer of assets, the real estate, and the rest of the property that you would be acquiring from the seller.
- Enclose the non-disclosure agreement. Make sure that the NDA would be enclosed with the agreement as well as the other documents. This ensures that everything regarding the transaction will remain discreet and will only be known to the parties involved.
- Placing funds and finances in escrow. Placing a certain amount of money in a bank is a security means of the parties that are involved with the agreement. Coming up with escrow agreements are also pretty common when it comes to acquisition transactions. To know more about escrow agreements, you may want to check out Sample Escrow Agreement Templates.
- File with the IRS. Just like any business, you would still need to file for IRS and file the tax returns for the year.
Business acquisition is not an easy feat when you are in the business world. However, should you feel that it would be best for your business to expand in this manner, then you should never hesitate to try doing it! You know what they say, “You’ll never know unless you try.” Besides, you still can opt to not push through with the transaction should you feel that you have chosen wrong or that right now is not the best time to do it due to some circumstances that may prevent you from doing so.
If you are looking for partnership tips and partnership agreement samples, you may want to check out Simple Business Partnership Agreements.
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