Can You Buy a Business Without a Solicitor?
I was recently involved with a business sale, where the business was sold without using a solicitor, which means it can be done.
You can buy a business without a solicitor if the seller is happy to sell without a solicitor too, but you need to be confident and competent at writing a agreements, which in this case will be a “Sale and Purchase Agreement”. If the deal includes a property, you should use a solicitor for this.
But for you to successfully buy a business without a solicitor, both sides of the deal need to be happy to do the deal without solicitors.
This means there needs to be a high level of trust for this to happen.
In this case, the buyer was a supplier of the business, so they already knew the owner and the business too.
So, trust already existed between the buyer and the seller, but this doesn’t necessarily mean they would automatically be happy to buy a business without using a solicitor.
To buy a business without a solicitor you need to build trust
If you want to buy a business without a solicitor, and you want trust to exist, this will be built at the same time as you are building rapport with the seller.
Rapport-building is key to any successful business acquisition, as the seller will want to trust you, before they sell their business to you, which is especially the case if you want to buy a business with seller financing.
No seller will sell a business to you, and offer seller or vendor financing, if they don’t trust you.
But you will need to ask yourself these questions;
- Why do you want to buy a business without using a solicitor?
- Is it because you want to save money on the transaction?
- Or is it because you don’t trust lawyers?
You also need to weigh up the risks vs the rewards of the transaction too.
You also need to ask yourself; what could go wrong if you buy the business having not used a solicitor.
In my course on how to buy a business, included in step 5 is how to do due diligence.
In this section of the course, I talk about the various forms of due diligence, one of which is legal due diligence.
Legal due diligence is especially important if the deal includes a property purchase, so if this is the case and the business owns a property, this may sway your decision about whether to buy a business without a solicitor.
I’m a Chartered Accountant and not a solicitor, but the advantage I have is that I’ve read lots of agreements, I’ve also been a party to many agreements too, both in business and in property, so I know my way around a contract.
Do you know your way around a contract?
If you don’t know your way around a contract, and if you don’t feel confident or competent to prepare the sale and purchase agreement yourself, you should consider using a lawyer instead.
Having said that, what’s the bottom line?
You can create an agreement simply with a handshake.
A handshake agreement is as good as a written agreement, but the one major difference; if you have a written agreement, it’s clear what was agreed, as it has been written down.
But for a handshake agreement, nothing is written down.
Which means that if you end up in a disagreement, it would be your word against there’s about what was agreed, or even if an agreement existed in the first place.
In this case, it should be obvious that an agreement existed, as the business would have changed hands, but if this were a handshake deal, none of the detail about what was agreed would be written down.
I’m not suggesting you do a handshake deal, but I’m using this as an example of how simple a deal can be if you and the seller want it to be that way.
At least if you have it written down, rather than as a verbal or a handshake agreement, the judge will have a document to consider, rather than them trying to decide which party to believe.
Do you need a written agreement to buy a business?
When you think about it, as my friend always says, an agreement is only wheeled out when there’s a problem, otherwise it sits in a drawer gathering dust.
Which means, if you want to enforce whatever agreement you have, because the seller is refusing to abide by one of the agreement clauses, if you’re not prepared to take them to court and spend thousands on legal fees, it doesn’t matter what agreement you have, it will still cost a similar amount in legal fees.
I encountered this situation when I wanted to sell my “third share” of the care business I owned. We had a shareholder’s agreement, but the other two shareholders (who were bothers), decided they didn’t like the terms of that agreement, and they chose to run a railroad through the contract.
I had a choice, I either spend thousands of dollars and take then to court, or I try to settle it amicably and out of court.
I chose the latter.
Whilst I didn’t receive 100% of what I was due per the agreement, what I did get was better than if I’d spent money on legal and court fees to take them to court and risk netting less than what was on the table.
Plus, at the time, I had just bought another business, which was 3-4 hours away from the care business, and I decided to bank the money, and focus my energy on my new business instead.
Risk of disagreement post acquisition means seller finance is key
The risk of disagreements, post-acquisition, is another reason why seller financing is so important when you buy a business.
Seller financing will protect you against any significant and unexpected costs that arise post-acquisition.
For example, if an unknown tax charge comes to light, or if you receive an unknown supplier invoice the seller should have told you about, or anything else like this, you can simply deduct these amounts from the balance of what you owe on seller finance.
This is far easier than having spend legal and court fees to take the seller to court to claim these amounts from them. Bearing in mind, the seller may have moved away or even moved to another country after they’ve sold their business.
The agreement needs to be clear and what has been agreed with the seller
Whatever you decide to do, be it to buy a business without solicitors or not, it’s important you make sure the agreement you prepare is clear and that it includes what you have agreed to with the seller.
This is why I recommend putting together a “Heads of Terms”, whilst face-to-face with the seller.
The Heads of Terms should include the main elements of the acquisition, like:
- The amount to be paid for the business;
- When this amount is to be paid;
- If the sale is to include seller financing;
- Whether interest will be charged on seller financing; and so on.
It is this Head of Terms you can either send to your solicitor, which in of itself will save time and costs, or if you choose to buy the business without a solicitor, you can use it to put the agreement together yourself using plain and simple language.
This way, there can be no misunderstandings.
You can use an agreement template if you buy a business without a solicitor
To prepare the agreement you can either draft it from scratch yourself, or can use a template as a starting point.
There are solicitors who sell agreement templates, which I recently used myself to create a commercial property lease, and these templates are relatively low cost.
The bottom line is that in countries like the UK, America and Australia, contract law is relatively straight forward. But if you decide to buy a business without a solicitor, the risk will be yours to consider.
I hope this helps you on your journey to finding a business to buy, and if you have any questions on this topic about buying a business, or on any other aspect about the process involved in buying a business, please drop a comment below.
And always remember; no question is a stupid question.
If you don’t know it, you don’t know it, and by having the answer to a question you have, might be all it takes to move to the very next step in your journey to buy a business.