EDMOND — EDITOR’S NOTE: This is a weekly series of columns written by attorneys at Lester, Loving & Davies law firm in Edmond.
Q: I am considering buying a business from a friend. How can I protect myself?
A: I promised myself I would never start an article this way, but I’m about to renege. Here it comes. Go see an attorney. It doesn’t have to be me. Any good attorney will do.
You make certain assumptions about your friend that your attorney will not make. You assume your friend is honest. She takes care of business. You know she would not mislead you. But the truth is that honest people overlook details that can matter. Good folk can get you into difficult situations without even knowing it. And some friends turn out to be the type of business people that actually would take advantage of a chum. An attorney can help you head off trouble at the pass.
Let’s use my daughter’s favorite summertime business as an example — the neighborhood snow-cone stand. If you buy such a simple enterprise from your friend, there’s so little to worry about, right? Well, what if your friend forgot to pay sales tax? You may open shop one morning only to find a bright orange sticker plastered to the side of your double-wide snow-cone trailer courtesy of the Oklahoma Tax Commission. Or Big Sal may show up to repossess the ice shaving machine that your friend forgot to tell you was collateral on her personal loan.
When you consult a good attorney, you will find that there are many potential pitfalls to avoid. First, always put the deal in writing — always. Handshake transactions don’t work. There are so many issues that future problems may have no clear solution absent a written contract. When you clarify everyone’s rights in a properly prepared document, unforeseen problems are more easily resolved.
Second, you must evaluate whether to buy the entire business or just the business assets. If you buy the business, you will own everything associated with it, from its countless bottles of cherry flavoring, to its telephone number and its trade-name. You will owe the taxes it accumulated and the income it is due. If you buy just its assets, and you make sure no liens exist on those assets, you will get the ice shaver and all the little snow-cone doo-dads, but not the business name and obligations.
Well, that’s two issues out of dozens. Put it in writing with the help of a good lawyer.