This article are provided for information purposes only, and are not intended as legal advice.


What type of lawyer do you need when you buy a business?

October 27th, 2009

You found the business that you want to buy and you go to the local lawyer around the corner from your house, is that the right type of lawyer to go to?  Does that lawyer have experience in buying or selling a business?  Will you be his/her first project of this nature?  If you go to a real estate lawyer, they may be an expert in house or commercial real estate but do they have experience in business transactions?  Many lawyers never want to turn down business so they tell you that they know how to do something and then they research the issue.    This can be a problem.  I have seen some general practice lawyers ask me a tax question then try to sell the idea to a client and provide all the tax work themselves.  They did not come up with the planning idea but they will be able to do the complex research to create the tax plan?

 

Recently, an investor went into partnership with someone in their community.  After a few months, the two sides did not trust each other and they started to fight.  One accused the other partner of taking goods from the business and using in another business that they owned.  Things deteriorated very quickly and one of the parties exercised the shot gun.  One of the parties started to ask questions about what their lawyer should be doing, why was he not thinking of certain things.  It went to court and the shot gun had a 30 day clause.  I suggested that they bring a certified cheque to court in case the other side did not come up with the cash in the shot gun.  What did her lawyer do – gave the other party an extension.  His client was the one who wanted to buy the business but the other side had the opportunity to buy out the person exercising the shot gun.  Why would a lawyer work against his client?

 

Obviously I do not have all the facts in this situation but the investor became very disillusioned with their lawyer.  This was 30 days after the shot gun was exercised that they realized that their lawyer did nothing to try to resolve the problem by having one party buy out the other party.  Who prepared the shot gun?  Was it properly worded and all items contemplated.  The investor was looking for an accountant on day 29 of the dispute to provide an investigation into the accounting irregularities and thought that this could be done in a few hours.  When one side is predicting that there is a fraud, it will not take just a few hours.  Was this fraud investigation part of the shot gun clause, the investor did not think so, she indicated that there were no adjustments that could be made at the time the shot gun is exercised.  In fact, it did not appear that there were safeguards for the investor who was not the main operator of the business.

 

Why did it take until day 29 of a buy sell agreement before the investor realized that they were not happy with their lawyer?  It becomes very expensive to change lawyers at the last minute and the new lawyer may be stuck with agreements which were not appropriately drafted.  If they had gone to a business lawyer in the first place, then the chaos which has been created may have been averted.


Filed under: Buy sell agreements,Lawyers — Gary Landa @ 8:39 am


1 Comment »


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