Selling a business in New Jersey or buying a business in New Jersey can be a complicated process with many factors to consider. This business lawyer blog post outlines what to expect after signing a purchase agreement but before closing on the sale of a business in New Jersey.
What Happens After Signing a Purchase Agreement?
After you’ve signed a purchase agreement or an asset purchase agreement, there are several steps that you and the other party will need to take before the sale can close. The first step is an exchange of documentation about the business, including financial statements, tax returns, leases, contracts, and any other relevant documents. The buyer will need to review these documents and conduct their own due diligence to ensure that the business is a sound investment. The seller may require the buyer to execute an NDA to protect its commercially sensitive information and trade secrets.
Once the buyer has completed their due diligence and is satisfied with the results, they will typically provide a deposit or earnest money to show their commitment to the purchase. The deposit is usually held in an escrow account (sometimes held by a business broker) until the closing date, at which point it will be applied to the purchase price.
Assigning an Existing Lease
One important consideration in the sale of a business is the assignment of an existing lease to the purchaser. The lease will need to be assigned to the new owner of the business in order for them to take over the premises and continue operations. Many landlords will also require that the new owner sign a personal guaranty when purchasing entity is newly established and does not have any true credit history. This can be a complex process that requires careful negotiation between the parties involved. It’s important to consult with a business lawyer to ensure that the lease assignment is properly documented and legally binding.
If the business being sold is a franchise, it’s essential to obtain approval from the franchisor before the sale can be finalized. Franchisors often have specific requirements, including financial and operational qualifications for the new owner. The franchisor may also require the new owner to undergo training and sign a new franchise agreement. It’s important to work with a business lawyer who is experienced in franchise law to ensure that the franchisor approval process goes smoothly.
Closing on an SBA Loan
Another consideration for buyers is financing the purchase of the business. One option is to obtain an SBA loan, which is a government-backed loan program that helps small businesses access financing. SBA loans are often used to fund the purchases of existing businesses, but the closing process can be lengthy and complex. It’s important to work with a business lawyer and a tax accountant to ensure that all necessary documentation is in order and that the loan is structured in a way that meets the needs of both the buyer and the seller.
The New Jersey Bulk Sales Act
In New Jersey, sellers of certain types of businesses and assets (a “Bulk Sale”) may be required to notify the state of New Jersey at least ten days before the sale is finalized. To comply with the New Jersey Bulk Sales Act, the seller must file a Form C-9600 with the state of New Jersey.
The purpose of the law is to ensure that the state is notified of the sale so that it can collect any outstanding taxes or other debts owed by the seller. Failure to comply with the law can result in penalties and fines. Therefore, you should consult with your certified public accountant when navigating this process.
To learn more, you can visit New Jersey’s Bulk Sale Frequently Asked Question: NJ Division of Taxation – Frequently Asked Questions About New Jersey’s Bulk Sale Notification Requirement and The Division of Taxation’s Form C-9600 (state.nj.us)Bottom of Form
In summary, once the purchase agreement is signed there is still a lot of work to be done to close the sale of a business in New Jersey. With the help of trusted advisors such as a reputable business lawyer, tax accountant, insurance broker, and other, buyers and sellers can navigate these complexities and ensure a successful transaction.
Russo Law LLC is experienced in handling a wide range of mergers and acquisitions, including buying and selling businesses of all sizes and can help you protect your interests and achieve your business objectives.
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