legal, equity, startup-costs, business-plan, business-structureI would like to take over a business, the owner of the business wants me to take over his business number and all his paper. What do you recomend or what do I really need to ask the guy ?
Of course this are Belgium regulations :)
Thnx! David
The general idea, apart from formalities like making sure the transaction is legit to begin with, is to do your best to not saddle yourself with hidden losses or debts. Off the top of my head, and in no particular order, you’ll want at least four groups of items for due diligence purposes:
Certification of incorporation (or whatever the local variation is in Belgium) and some kind of proof of ownership (shares or some other form of paperwork that establishes that you’re indeed dealing with the sole owner). This is to verify that the company is a) incorporated and b) actually owned by the vendor or their representative. Because - yes - there are less than recommendable people out there who sell companies that doesn’t exist or that they don’t own in full. You’ll also want a copy of the Shareholder Agreement, if any. When there are multiple shareholders, the latter will often include provisions when it comes to selling their stakes in the company.
The company’s Balance Sheet and Income Statement for the past couple of years. You want these checked by a trustworthy accountant. This is so you can look for potentially hidden debts and potential losses waiting for happen. If applicable, also be wary of “assets under management” or similarly named items, as well as financial instruments owned by the company (e.g. AAA-rated mortgage backed securities), because they’re sometimes euphemism for off-balance-sheet liabilities and miscellaneous losses waiting to happen. You ideally want this notarized for reasons similar to why you should only accept an inheritance subject to a notarized inventory: to protect yourself from taking on hidden liabilities.
Check all ongoing contracts - and ideally old ones too. Keep an eye open for IP-related clauses (i.e. who owns the IP), mind whether the contracts transfer to you or terminate when the company gets sold, warrantees of all sorts, and be especially wary of indemnity clauses. The latter can turn into massive sources of potential liability. (Small firms accepting outsized indemnification clauses over tiny contracts is not unheard of.) Also check past employee and contractor contracts, if any, for things IP related and whether there might be hidden liabilities.
The full list of unpaid invoices and liabilities. Make sure you understand the liabilities you’re signing up for (e.g. supplier invoices, taxes), and be sure to run a few background checks on companies that will owe you large amount of money. Also run a few background checks on companies that have a history of not paying on time.
I’m quite sure I’m forgetting many others, e.g. obvious items like the client list and their contact details, checking that the business doesn’t depend on a handful of clients (it’s a recipe for going bust when one leaves).
Aside: in case you’re merely buying a web-based operation or something to that effect, you might want to consider an alternative approach. Namely, to incorporate your own business and stick to buying the assets (including IP and contacts) and transferring the contracts you need to operate the business going forward. Doing so involves the same type of due diligence, but it ensures you’ll be buying an itemized list of assets without leaving much room for surprises.
IANAL. And be sure to involve a lawyer to cross t’s and dot i’s.
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