There are numerous advantages of buying an existing business rather than starting up one from scratch.
You will significantly reduce the time it takes to launch, the service or product you are going to sell has already been market-tested, and you will have an existing customer base.
However, you need to consider both the pros and cons before you go ahead and purchase a business.
For instance, you could need to spend a lot of money on operational costs and it could be difficult to make the brand really feel like your own.
Another thing you must be prepared for before you buy an existing business is the potential legal pitfalls you could face. Here are six you need to consider.
1. Needing to Legally Employ Existing Workers
Sometimes when you buy an existing business you are legally required to keep on its employees.
In the United States, if you purchase a business as an ongoing concern, you must take on the existing workers under the Transfer of Undertakings Regulations of 2006.
If you want to hire all of your employees yourself to make a fresh start with the business you are buying, you need to be aware of the pitfall of having to legally employ existing workers.
However, taking on existing employees can work in your favor sometimes, as you will already have professional workers in place who know exactly what they are doing.
2. Not Having All Intellectual Property Rights
When you take over an existing business, you not only get physical assets. You also gain intellectual property rights for things like the brand name, trademarks, and patents.
However, to avoid legal pitfalls, you need to ensure you know exactly what you will own before buying the business.
You should seek legal advice from expert intellectual property firms like Heer Law to ensure you own all rights and are adequately protected. A professional law firm can also help to transfer rights from the previous business owner.
3. Requiring to Pay Employee Pensions and Benefits
If you are taking on existing employees, you may also be legally required to take in the existing pension arrangements. If you fail to do so, you could get yourself in hot water.
Make sure you know what benefits you need to cover for transferring employees before you purchase a business to avoid unexpected costs or legal penalties.
4. Needing Approval from Third Parties
Legal pitfalls often come down to the fact that new business owners do not spend time researching and planning to discover what their legal liabilities are.
One thing that is often overlooked is the need to gain consent from third parties. You could need to get approval for your business purchase from industry regulators or competition authorities, depending on the type of business you are going to buy.
Also, if you are acquiring all of the shares in a company, you need to ensure no important contracts can be terminated once you take over. To avoid that legal pitfall, you may need to get approval from shareholders.
5. Environmental Issues
If you end up buying contaminated land, or if the existing company caused or allowed contamination on the land you own, you could face massive legal liabilities.
That not only includes financial penalties. It could potentially result in criminal liability.
6. Being Unaware of Shared Assets
Is the business you are considering buying part of a larger corporate group? If so, you may be purchasing shared assets like properties, insurance policies, and computer systems.
You need to know whether you can unravel those arrangements without incurring prohibitive costs.
To avoid legal pitfalls, seek advice from an experienced law firm that can draft agreements that detail how the shared assets will be divided once the sale of the business has been completed.
