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Selling a business is a major milestone and an event that requires proper planning and attention to detail. You may be wondering whether you need to hire a lawyer to assist you. The answer isn’t a simple yes or no, as it depends on several factors, like the size of your business, the complexity of the transaction, and your level of experience in business sales.
Understanding the legal aspects of a business sale is crucial to ensure a smooth and successful transaction. A lawyer specializing in business law can help you navigate the legal complexities of a business sale, including drafting and reviewing contracts, negotiating terms, and ensuring compliance with state and federal laws.
However, hiring a lawyer can also be costly, and you may wonder whether it’s worth the expense. This article explores the advantages and disadvantages of hiring a lawyer to sell your business and provides guidance on when to consider hiring one.
My Own Experience With Business Sales and Lawyers
I’ve sold several online businesses and, in most cases, haven’t hired an attorney. For my first significant sale, I hired an attorney on Upwork to review the Asset Purchase Agreement provided by the buyer. I think I paid $200 – $300 (this was in 2013, so the price would be higher now), and it was some of the best money I’ve ever spent.
The attorney gave me some excellent feedback and wrote a few small additions to the agreement, along with explanations of why he felt they were important. For subsequent sales, I compared the agreements to the one the attorney had reviewed and basically used that as a template or guide.
The only sale where I hired an attorney to do major work was when my wife and I sold an Amazon FBA business. Due to the complexities of Amazon’s policies, inventory, and the potential liability of physical products, we felt an attorney was needed.
In that case, the buyer provided us with an Asset Purchase Agreement, but it needed A LOT of work. Our attorney rewrote most of it. In total, we paid more than $10,000 for the attorney’s services to draft the agreements and advise us through the process of selling. Although it was a lot of money, it was definitely worth it, and I would do it again in a similar situation.
Although I haven’t hired an attorney for most of my sales, I would hire one if I had larger sales. Most of my sales have ranged from $200,000 to $500,000, and aside from the Amazon FBA business, they were fairly low-risk and straightforward. I would be far more likely to use an attorney for larger or more complex sales.
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Ways That Attorneys Help With Selling a Business
Before you can decide if you need a lawyer when selling your business, it’s essential to understand what they can do and how they can help you.
1. Drafting and Reviewing Contracts and Agreements
A lawyer will draft or review any business contracts related to the sale, such as an asset purchase agreement, stock purchase agreement, or non-compete agreement.
If your lawyer isn’t drafting the agreements (for example, if the buyer provides them), your lawyer can review the documents and make any necessary revisions. You’ll have a legal expert on your side to ensure you don’t sign anything unfair or unfavorable to you.
2. Protecting Intellectual Property
If your business has any intellectual property, such as patents or trademarks, a lawyer can help you protect them during the sale.
3. Negotiation Support
An experienced business lawyer can also help you with some aspects of negotiations, providing advice on which points are negotiable and which ones should remain firm. They can also negotiate the terms and specific details of the sale. The attorney can help you communicate with the buyer and manage difficult conversations if required.
4. Minimizing Legal Risks
Your lawyer will help to protect you and minimize your legal risks. This includes ensuring that the terms of the agreement provide as much protection as possible and have the necessary language to protect you and your interests.
5. Due Diligence
Due diligence is an important part of the process for both buyers and sellers. Your lawyer can help you perform the necessary due diligence to ensure the buyer is legit and qualified. The attorney can also assist and advise you as you provide the buyers with details and documentation they need to do their own due diligence.
Cost Considerations for Hiring a Business Lawyer
The most significant reason why sellers avoid hiring an attorney is the cost. Of course, qualified attorneys don’t come cheap. The exact cost will vary depending on details like the size and complexity of the business, the type of sale, the location, and the experience and reputation of the lawyer.
Some lawyers charge a flat fee for their services during the selling process, while others charge an hourly rate. Going with an attorney who offers a flat fee will give you confidence that the cost won’t spiral out of control, but it’s important to consider the limitations of what’s included in that package.
When You Should Hire a Lawyer to Sell Your Business
When selling a business, there are certain scenarios where hiring a lawyer is a good idea or even unavoidable. Having a knowledgeable legal expert by your side can help ensure a smooth process and protect your interests.
Large Sale Price
When dealing with a large sum of money, it’s essential to have a lawyer on your side to protect you and ensure the sale is conducted properly.
Of course, “large” is subjective. But, in general, if the cost of an attorney is a relatively insignificant percentage of the proceeds from the sale, it makes sense to hire one.
Complex Business Structure
If your business has a complex ownership structure or complicated contracts and arrangements in place, hiring an attorney is a must. If there are any disputes over ownership or pending legal claims against the business, it’s crucial to have a lawyer to help navigate these complexities.
A lawyer can help you understand the legal terms and provide guidance on how the sale should be structured and handled.
Lack of Experience
If this is your first time selling a business, or you’re unfamiliar with the legal aspects of a business sale, it’s wise to hire a lawyer to guide you through the process and advise on which steps should be taken.
If you’re concerned about the possibility of any specific legal issues or liabilities arising from the sale, hiring an attorney is essential. They can advise you on the best course of action and draft agreements to protect you as much as possible.
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When You Don’t Need an Attorney to Sell Your Business
In some cases, it’s possible to handle the sale of a business without a lawyer. This decision should be made carefully after considering all factors.
If your business is low risk and the sale is straightforward, you may be able to handle it without a lawyer. It’s possible to use templates for the agreements and contracts, although it’s worth having an attorney review them before signing.
Low Sale Price
If the sale price is relatively low, and hiring a lawyer would mean a large percentage of the sale proceeds would go to the attorney’s fee, it may make sense to handle the sale yourself. This is often the case with selling smaller online businesses and websites.
If you have experience selling businesses and are familiar with the legal aspects of a business transaction, you may feel comfortable taking on the process without a lawyer.
It could be a viable option if you understand all potential risks and take appropriate steps to protect yourself. However, if the sale is large, complex, or high-risk, it’s worth hiring an attorney, even if you have experience.
Alternatives to Hiring a Business Attorney
You may feel like you need an attorney, but the cost is just too high relative to the sale price of the business. If that’s the case, a few alternatives can provide you with some assistance without breaking the bank.
Hire an Attorney Just to Review the Documents
Instead of hiring an attorney to draft the agreements and provide a full range of services, hire one simply to review documents before signing. If needed, the lawyer can make suggestions and additions, but the time requirement (and cost) is much lower.
You could hire a local attorney or find a lawyer on a platform like Upwork. Plenty of qualified attorneys on Upwork are open to small jobs like this. You can get valuable advice and peace of mind for just a few hundred dollars.
Online Legal Services
There are a few services out there that offer legal documents and advice for online business owners. These services will provide you with the templates needed to draft agreements, such as an NDA, Letter of Intent, Asset Purchase Agreement, etc.
They also have attorneys available to answer questions or review documents if needed. You can pay for only what you need and save thousands of dollars compared to hiring a full-service attorney.
Business brokers can provide expert advice and help you navigate the sale process, including valuation, negotiations, and deal structuring. Most brokers have templates you can use for all the necessary agreements and documents.
It’s essential to recognize that while business brokers are experienced in these types of transactions, they’re not legal professionals. They may be able to help you with some aspects of the sale, but they won’t replace an attorney.
Deciding whether or not to hire a lawyer for the sale of your business is not always simple or straightforward. It’s essential to consider all factors and determine what makes sense for you in terms of cost, risk, and complexity.
If you feel like you need legal assistance but just can’t afford a law firm, the alternatives discussed in this article will give you some support without breaking the bank.