hello. I’m Dongho Song from Song & Associates. The other day, I walked into my favorite restaurant and saw an “Under New Management” sign at the entrance. After a few moments of disappointment at the sudden change of ownership, I was pleasantly surprised to see a new owner who knew my tastes and welcomed me with open arms. Having worked on a number of business sales and acquisitions, I understand that the process of taking over these new stores is not without its challenges. Today, we’re going to talk about the business buying and selling process that these new business owners encounter.
Buying and selling a business can range from the small shops and businesses that we see all around us, to the mergers and acquisitions of large corporations that we all recognize by name. For example, the merger of BBCN Bank and Wilshire Bank, the largest Korean-American banks in the U.S., is an example of a business buy and sell that has garnered a lot of attention in recent years, ranging from the sale of businesses such as laundromats, nail salons, and delis run by Korean-Americans. While the process of buying and selling a business may be similar in the grand scheme of things, there are significant differences in the details. Today, we’re going to focus on the process of buying and selling a small business, which is more common in the Korean American community.
To buy or sell a business, you start by analyzing and researching suitable properties that match the business you want to start and other criteria. This can be done with the help of a broker, a referral from a contact, or through various publications and listings on the internet. Once you’ve identified a business you’re interested in, you’ll contact the current owner, a representative of the business, or a broker.
You will then conduct basic research on the business, visit and meet with the business. To share more information about the business, you may be asked to sign a Non-Disclosure/Confidentiality Agreement, which promises to maintain the confidentiality of information disclosed in the course of a business sale. This is an important document because during a business sale, you will be sharing financial details such as the business’s monthly, quarterly, and yearly profits, sales, and expenses, as well as trade secrets such as how the business operates.
After sharing information about the business, the price of the business is measured and negotiated to determine how the buyer will be paid. Once the basic terms of the business sale have been negotiated, the parties will enter into a Letter of Intent. The letter of intent is then used by both parties’ lawyers to draft a business purchase agreement.
Small business sales often take one of two forms: a ‘stock sale’ or an ‘asset sale’, but most often an asset sale involves the sale of the business’s inventory, machinery, trade name, trademarks, reputation, leasehold interests, etc. For example, if you have a dry cleaner that has been operating in the same location for 20 years, all of its equipment, as well as the intangible assets such as industry reputation, goodwill, customer base, etc. that it has built up over 20 years of business, will be transferred to the new owner in an “asset sale” type of business acquisition. In general, business acquisition requires a careful review of existing debts, and the term and terms of the lease of the store or company to be transferred are also very important. In particular, the landlord’s consent is often required to transfer the lease, so the financial situation and credit of the buyer have a major impact on the business sale process.
As mentioned above, the process of buying and selling a business varies depending on the size of the business and its particular circumstances, so it is recommended that you consult a specialized lawyer for each situation.
If you have any further questions regarding real estate/commercial law, or if there are any laws that our readers would like to know about, please feel free to contact us at mail@songlawfirm.com.
**The Song Law Firm (www.songlawfirm.com) is one of the fastest growing law firms in the northeastern United States. The firm is creating a fresh breeze in the Korean community with its client-centered services that break the preconceived notion that “lawyers are authoritarian” or “lawyers are stingy with explanations.” With the opening of its Korean branch in Yeoksam-dong, Gangnam-gu, this winter, the firm aims to provide even more differentiated legal services to Korean residents.
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