The concept of buying a business
Buying business refers to the purchase of a business activity, not the acquisition of the business activity of the company. The purchase business is the transfer of assets related to the business between the buyer and the seller. The buyer has nothing to do with the liabilities incurred by the seller in carrying on the business.
Types of due diligence
Due diligence includes law-level, financial-level, market-level, technical-level, government-policy and planning-level surveys. Detailed due diligence will help buyers avoid loss and law liability.
Due diligence at the law level
We mainly from the following six aspects of the introduction.
First, do due diligence on the seller.
1. Investigate the ownership of the business. The buyer needs to check whether the business name is registered in the name of the company or individual. Only the company or individual has the right to sell the business.
2. Investigate the background of the seller, that is, the company or individual. For example, whether there is a bankruptcy record, a criminal record, a court execution order, and so on. As with other goods, the buyer needs to prove that he or she is a real buyer, that he has investigated the seller, and that he does not knowingly buy it in the knowledge that the seller is having a problem.
Second, investigate the assets to be purchased.
1. Investigate whether the seller holds all the assets under the business. Judge whether each asset is a mortgage, a lease or a buyout.
2. Whether it involves the transfer of intellectual property (e. G. trademarks, patents). Judge the legality and value of the intellectual property right.
3. To investigate (a liquor licence, for example) the licence held in the business. Investigate whether the relevant laws and regulations permit the legal transfer of the licence held by the business. Ensuring the legal transfer of a license in a contract is a prerequisite for the final conclusion of a business transaction.
4. Check the quality and quantity of the existing goods to be transferred.
5. The buyer and seller need to make it clear that they do not follow the sale of assets. For example, advance payments, accounts receivable, etc.
6. If both buyers and sellers are registered entities of the GST, the seller does not have to charge the buyer GST, that is, the contract price does not include the GST, buyer, nor can the buyer ask the tax Administration to hedge the GST. in the future
7. Consider the lease of the place of business, the lease of the equipment involved in the trading contract. Whether the lease needs to be renewed and when it needs to be renewed, whether the rent will grow on an annual growth index or if it will need to be re-evaluated in the light of market conditions.
8. Consider the validity period of the relevant insurance, the object and scope of the insurance protection. In the case of public liability insurance, if a consumer slips and hurts as a result of a waterlogging on the floor at the business premises, depending on the way and object of the injured prosecute, the coverage of the business premises becomes crucial.
9. In the case of immovable property, such as land and the transfer of real estate, property inspection of the immovable property is required. The seller is confirmed to have the right to sell the immovable property and may transfer the property without any hindrance.
Third, assignment of the relevant contract
In the case of a contract signed between the seller and others in this business, the buyer shall first consider whether there is any alternative contract to achieve the same effect; Secondly, consider transferring the seller's old contract to the buyer's name and considering whether the seller is liable for breach of contract in the old contract, any unfair clause in the contract, And whether the relationship between the other side of the contract and the seller would be of interest to the buyer, conflict.
Fourth, financial responsibilities and commitments
The contract for the purchase business specifies which responsibilities and commitments the seller requires the buyer to continue to assume and which does not require the buyer to continue to undertake. For example, whether the buyer is required to guarantee the quality of the goods sold, whether the buyer is required to continue to fulfill the refund agreement for the goods sold, and whether the buyer is required to honour the interests of the member concerned.
Fifth, Employment relationship
1. Control key figures.
Who is the main manager in running the business. If the manager plays a decisive role in the success of the business, then an employment agreement should be signed with the manager to protect the interests of the buyer.
2. Audit the employment contract.
Investigate whether the contract of employment meets the requirements of employment law and whether there have been or may be complaints against the seller.
3. Investigate employee work permit.
Investigate whether the employee has a legal work visa and the relevant license necessary for the position.
Sixth, the investigation of government Policy
1. Investigate the local health environment, water source standards, waste treatment policies.
2. Investigating whether government has introduced a new law could have a negative impact on the business. For example, the legalization of Uber by government would have an impact on the taxi business, or government would impose tariffs on certain raw materials to increase the cost of the business.
3. Investigate whether government will be zoned, and whether future road and infrastructure construction will have a negative impact on business purchases. Consult the local town planner if necessary.
These are the most basic surveys that need to be done at the law level when buying a business. These surveys will vary depending on the industry and the complexity of the situation.
Rigorous due diligence before buying a business is the cornerstone of ensuring investment safety.