Negotiating Business Mergers

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 What Is Business Law?

Before discussing negotiating business mergers, it is helpful to first discuss business law in general. This will help you have a basic understanding of the system that governs business mergers. Business law is also known as commercial law, and is an umbrella term for the body of laws that govern entities and commercial transactions.

An example of this would be if you wanted to start a clothing company. Business law would dictate how you are to organize and register your company, as well as how to pay your employees. Business law also covers how to legally ship your merchandise to customers who have ordered from overseas.

Business law comprises federal, state, and local regulations. Additionally, there are multiple specialized categories associated with businesses. Some of the most common examples of different areas of business law that may apply to a business include:

  • Business formation and dissolution;
  • Commercial law and contracts;
  • Investing and securities law;
  • Intellectual property law;
  • Antitrust and white collar crime matters;
  • Corporate law;
  • Bankruptcy;
  • Employment law;
  • International business; and
  • Tax law.

Business formation, or how the business is organized and classified, is considerably significant. This is because the way in which a business is formed will determine issues such as:

  • The amount of funds that the business owner can receive from investors;
  • How many people can sit on the company’s board;
  • Who is to be held responsible for any liabilities or debts that are incurred by the business; and
  • How the business will be taxed.

A business owner may choose from a number of different business formations, such as a corporation, a limited liability company (“LLC”), or a general partnership. Certain business formations provide rules associated with how a company must operate. An example of this would be how in a limited partnership, there must be at least one partner who serves as a general partner to the entire partnership, as well as one limited partner who is to exist as a valid limited partnership.

What Kind of Compromises Are Necessary To Negotiating Business Mergers?

There are three important tools to be aware of when negotiating a business merger: compromise, persistence, and a well-formed team. It is imperative to keep perspective maintained throughout any business negotiation.

Fights over money are generally the most obvious and bitter fighting in a business merger transaction. Frequent concessions must be made in order to satisfy both sides of the deal. However, in a merger both sides will want a larger degree of control, especially when money is distributed according to business profits.

Compromise is imperative due to the fact that it helps you accumulate bargaining chips, as well as works to prevent negotiations from breaking down entirely. Unless the issue is very obvious and considerably unreasonable to dispute, you should never allow a party to gain a concession without them owing you something in return. This is because giving away too many concessions may end up backfiring and cause other issues later on.

However, it is worth noting that not every minor dispute should be turned into a larger issue. It is advised that you do not create unnecessary bitterness by driving a hard bargain, as it is often better to relinquish a “free” concession in order to negotiate for a free concession of your own at a later date.

How Much Persistence Is Necessary For Negotiating Business Mergers?

Your impulse may be to complete negotiations over seemingly minor details quickly, to the effect that a persistent business owner will receive a very good deal over a flashy but tired owner. This is done by gaining many small concessions late in negotiations. Do not drag out issues that are not necessary to your agreement, but choose your battles wisely. You should take a break before continuing negotiations, or consider bringing in extra experts if necessary.

Something else to keep in mind is that although the purchaser traditionally gets to draft the contract, you should seek to draft as much of the contract as possible. This gives you a degree of control over:

  • The agreements that are written down;
  • The time of presentation; and
  • The pace of negotiations.

If you are not the purchasing party, it is advised that you refrain from being overbearing in providing the opposite party with contracts that they are in the process of drafting.

What Type Of People Generally Form A Well-Formed Merger Team?

Generally speaking, an ideal merger team includes all of the following individuals:

  • The business person who is capable of making informed final decisions;
  • A financial person who is capable of understanding the consequences to profits, as well as stock prices;
  • An accountant who can calculate whether the company can afford those consequences;
  • A tax person who will determine what tax consequences will exist for the business; and
  • A lawyer who can handle any of the legal aspects associated with business mergers.

While only the business person and lawyer are critical to the actual negotiations, more experts should be brought in if you feel you are overwhelmed or certain aspects of the negotiations confuse you. It is better to hire more help to ensure the merger goes smoothly, than attempt to do it all yourself.

What Else Should I Know About Buying And Selling An Existing Business?

Although buying and selling a business differs from merging a business, it is worth discussing as the two actions have similar components.

Businesses that are already established generally come with an established customer base, a fully hired staff, and a physical location and/or online presence. Some of the common legal steps to buying a business include, but may not be limited to:

  • Creating a budget to determine how much you can afford to spend on buying a business;
  • Hiring a business attorney to perform due diligence on the business you wish to purchase;
  • Discussing the purchase with other buyers, if there are any, in order to better understand their goals before entering into negotiations;
  • Developing a business plan to determine whether it is feasible to continue operating the business;
  • Requesting to see an existing business’s current financial and legal documents;
  • Listing items that are non-negotiable for you to purchase the business, or that you need to confirm that the business has before you buy the business;
  • Checking that the business has a good reputation; and
  • Researching the industry in order to ensure that you are not buying a business that will soon be obsolete.

Some legal tips to consider when buying and/or selling a business include:

  • Hire a business attorney to perform due diligence, oversee disputes, and/or handle necessary legal issues and procedures associated with the buying and/or selling of a business;
  • Ensure that a business’s debts and liabilities are completely resolved before selling or buying the business;
  • Create a solid business plan in order to begin running the business as soon as it is sold, or develop an exit strategy to follow once the business has been sold;
  • Cooperate with the opposing party during all negotiations as well as any other discussions associated with the transaction;
  • Ask questions about a business in order to operate it successfully;
  • As a seller, be up front about any problems that the business is currently experiencing; and
  • Hire separate appraisers in order to determine how much the business is worth before it is sold or purchased.

Do I Need An Attorney For Negotiating Business Mergers?

If you are considering merging your business, you should consult with an experienced and local business lawyer before doing so. An attorney can help you determine your state’s specific laws regarding the matter, and can provide assistance during the process. Finally, an attorney will also be able to represent you in court, as needed.

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