If you're buying or selling a business, the deal will almost always be structured either as an acquisition, through an asset purchase or a stock purchase or as a merger.

The two basic forms of business acquisition are stock or assets. In a stock transaction, the acquired company's debts and obligations remain. In an asset sale, the acquiring company does not take responsibility for the debts of the acquired business; but rather, the acquired company uses the proceeds of the sale to settle all obligations of the business and is responsible for any future debts that may arise.

In Illinois a merger refers to a specific statutory procedure by which one entity absorbs one or more other entities, takes over all property, rights, and franchises of the other entities, and becomes liable for all of their liabilities and obligations.

It is important that an attorney understand the client’s purposes in purchasing or selling a business enterprise in order to advise the client adequately with respect to the best form for the transaction. Mr. Siebert understands that by knowing the client’s purposes, Mr. Siebert can help the client structure the transaction in such a way that he can give particular attention to those matters that are critical to accomplishing the client’s objectives.

While the motivations of a buyer of a business are numerous, some common ones include:

diversification into new product lines or geographic markets; obtaining needed working capital or management personnel;

obtaining additional or new sources of supply or channels of distribution;

obtaining the tax benefits of the selling entity; or

obtaining particular assets of the selling entity, such as specific real estate, machinery, patents, or trademarks.

A seller’s motivations are often varied but will typically fall into one or more of the following general categories:

diversification by owners of a closely held business into other, potentially more liquid, investment opportunities

conflict between owners of a closely held business that can be reconciled only by the sale of the business to a third party

the opportunity to enjoy a substantial profit

business adversities such as capital shortage, loss of a source of supply, lack or aging of management, or a declining market.

Mr. Siebert works with you and your accountant and together, can assist you in establishing the framework for the transaction that will best serve you in achieving your goals.

Asset Purchase: In concept, the easiest way to buy a business is to purchase a seller's assets, free and clear of any liabilities. The purchaser is not actually buying the business entity itself. Thus, an asset purchase is much like buying the seller's merchandise without buying the store.

Stock Purchase. A stock purchase may require only that the selling shareholders swap their stock certificates for a check from the buyer. In contrast to an asset purchase, the buyer is actually taking over the seller's store and not just purchasing the merchandise.

Merger: A merger refers to a specific statutory procedure by which one entity absorbs one or more other entities, takes over all property, rights, and franchises of the other entities, and becomes liable for all of their liabilities and obligations.

“Due Diligence"

"Due diligence" is the process in which the purchaser investigates all aspects of the business that is to be acquired. The purpose of due diligence is to determine whether the business is accurately represented by the seller and to ensure, to the extent possible, that there will be no unexpected adverse surprises after the sale is closed. The extent of due diligence varies according to the nature of the business and is usually undertaken by professionals such as attorneys and accountants. Mr. Siebert can assist you in performing the necessary due diligence in the purchase of your business.

The due diligence and contract negotiation process can be extremely expensive. Thus, where the asking price of a business is relatively small, the purchaser may not wish to spend money on legal and accounting fees in an amount equal to, or greater than, the purchase price of the business. Lowering the cost of the transaction by reducing the amount of due diligence usually means that the purchaser assumes a greater degree of risk.

FOR MORE INFORMATION ON THIS SUBJECT OR TO SCHEDULE AN APPOINTMENT WITH MR. SIEBERT TO DISCUSS THIS OR ANY OTHER MATTER CONTACTMR. SIEBERT’S OFFICE.