When buying a business or the assets of a business, there are a number important legal issues you need to consider before signing the purchase agreement. Prior installments of this Article examined the role of the Exclusivity Agreement, the differences between structuring the transaction as stock purchase as opposed to a purchase of assets, and the importance of escrowing a portion of the purchase price to cover any issues that may arise post closing. Due diligence is an essential aspect of any purchase transaction as it used to verify valuation assumptions (i.e., if the purchase price makes sense) and identify risks (whether they are legal, financial or operational). This Part IV of the series on buying a business discusses important areas for the due diligence, tailoring the investigation to the nature of the business being purchased and how to address legal, financial and operational issues in the purchase agreement.
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Legal Issues When Buying a Business: Due Diligence