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Legal advice for business transfer

Legal advice for business transfer

Business transfer is a good option for entrepreneurship. It allows you to start an economic adventure without starting from scratch, already counting on a proven operation, a portfolio of clients and assets in operation.

But acquiring the transfer of the business also has counterparts. Mainly they are related to the current situation of the business, regarding its debts and charges, and with the ignorance of its operations or business culture.

So, the transfer of business, although it is a good opportunity, is not without risks. And this is the reason why it is convenient to study the operation with the help of a lawyer specialized in corporate law, and with experience in business transfer. 

In order to offer an overview of the precautions to adopt before embarking on a business transfer, we have put together some of the essential tips to keep in mind.

Advantages and disadvantages of business transfer

The advantages of the transfer of business are related to the fact that it is a business already in operation. This implies that you already have suppliers and employees ready. It also has a know-how, which has been contrasted with the market and has proven its effectiveness. 

The transferred businesses already have a track record, which implies valuable intangible assets and a portfolio of clients. Therefore, making the investment profitable usually takes less time than if you had to start from scratch.

But the transfer of the business also involves the acquisition of its liabilities. That is to say, the debts and charges of the company will pass to its new owner, so it is advisable to calculate precisely whether the business itself will be able to cope with them or will be in deficit.

On the other hand, the businesses in operation already have their own operations and corporate culture. Although this presents favorable elements, it can also be an impediment if the new owner is not able to understand them and give them some continuity.

It is not that the acquirer must strictly follow the rules of the previous owner's house. But you should know how you worked and how your audience perceived you, because sudden changes can take their toll on the client portfolio, the productivity of the workforce and even the profitability of the model tested by the previous employer.

Information about the business before its transfer

To alleviate these disadvantages, it is essential that the purchaser obtain all possible information about the business before proceeding with the purchase. Mainly we refer to account books, inventories, reports ... but also corporate and operational manuals, premises lease conditions, current labor contracts, financial instruments ... In short, all the documentation that allows us to obtain a perspective realistic about the state of the business. 

In this sense, we must bear in mind that not all entrepreneurs will be willing to offer us their business documentation without further ado. So, the best thing to do is to sign a due diligence or confidentiality contract, or to have the initial evaluation done by an independent auditor.

Experienced business transfer attorneys can handle these tasks. They will be the guarantors of the transparency of the operation, despite the precautions to be taken for confidentiality and business secrets.

Market study and previous operations

Of course, before proceeding with the transfer, it is advisable to study the market and the operations of the previous owner. We will not dwell on this point for long because it is not something strictly legal, although it is a task that can be delegated to the lawyer.

But we do want to emphasize that it is important to access the know-how of the company and know the informational assets that it has. Most likely, they will be covered by the Business Secrets Act, so it is likely that confidentiality guarantees will have to be established.

It will also be interesting to make sure you retain some of the key people in the organization to help us make the transition. For this, permanence commitments can be used, although the most effective ways will always be incentive programs. And the thing is that the most we can do through a permanent commitment is to obtain compensation if the key personality leaves his post, but in no case can we force him to remain in it.

In fact, it is usually convenient for the outgoing owner to remain in the company for a reasonable period of time, along with the incoming owner. This will allow the new owner to know in detail how the activity was carried out previously, avoiding possible negative impacts of the transfer of powers.

Leasing precautions 

If the activity takes place in a leased commercial premises, it will be advisable for us to negotiate not only with the owner of the business, but also with the owner of the premises. Although the assignment of this type of lease is free according to the Urban Leasing Law (LAU), we must not forget that the lessor will have the right to raise the rent by up to 20%. 

It is also advisable to review the lease, which in this type of rentals applies in preference to the LAU itself. So, it could contain restrictive clauses that tie our hands when adapting the premises to our new needs.


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