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Philip L. Chapman, Esq. of
Lum, Drasco & Positan, LLC, Roseland, NJ

If you have identified a particular company whose business or stock or limited liability company membership interests you are interested in buying (the “Target Company”) here are some tips you will want to consider at the very outset or soon thereafter. 

Forming the “Acquisition Team” of Professionals:

Business Intermediary 

If you do not have significant experience in negotiating for and closing the purchase of businesses, you should seriously consider engaging the services of a qualified business intermediary (sometimes referred to as “business brokers” or as “investment bankers”) to assist you even though you have identified the Target Company.


Make sure your accountant is both business and tax-savvy and experienced in the purchasing and sale of businesses.  In some instances, you will want an accountant who has prior understanding of the business in which the Target Company engages.

Principal Attorney for the Acquisition

No matter what the size of the deal, make sure that your lawyer is experienced in the purchasing and sales of businesses and practical. Your lawyer must be able to craft his or her approach to the transaction to fit the size of the proposed deal, your reasons for buying and the style of the principals of the Target Company.  You don’t want your lawyer producing a sixty page Asset Purchase Agreement or Stock Purchase Agreement which contains unnecessary provisions, turns off the seller or sellers and causes too much time and energy by all concerned to prune down the document to fit the deal.

Attorney Specialists You May Need

If the Target Company has a patent, trade name, trademark or copyright which is important  to the business, early on you should engage an attorney specializing in intellectual property.

 If you plan to retain the Target Company’s work force, with or without operating the business in place, you may want to engage an attorney specializing in employment law.

Environmental Engineer 

If you plan to operate the Target Company “in place” you should engage the services of a well qualified and expeditious environmental engineering firm to investigate the environmental condition of the property occupied by the Target Company.

Insurance Advisor 

At some point in the progress of the deal, you will want to have a well qualified insurance professional evaluate the Target Company’s coverages for public liability, casualty, product liability, workers’ compensation, and employment practices insurance.

Form of  Target Company’s Financial Statements; Due Diligence

If the Target Company’s financial statements (either compilation or review) raise important questions, either by their contents or omissions, you will have to determine what level of investigation you and your accountant are going to have to conduct to obtain a true understanding of the condition of the Target Company.

Human Resources and Employment Practices

Lawsuits and EEOC complaints as to sexual harassment, discrimination in hiring or terminating, wrongful termination of at-will employees without following the procedures in the company’s employment manual, elimination of job positions previously occupied by a mother wishing to return from maternity leave, refusal to provide family leave, refusal of the company to offer other duties to a partially disabled worker—-these occur more and more every day. Failure to handle the above and other HR problems with maximum touch can turn a small fire into a major conflagration, with high legal costs, even if the Company settles for little money of consequence or wins; and can expose the business to huge compensatory and punitive damage awards.

In a proposed purchase of stock of limited liability company interests, or in a merger, too much uncertainty about contingent liabilities in the employment practices area can queer a potential deal. Even in an asset sale, where the buyer is acquiring a work force to continue to operate in place, too many poor past employment practices which will require the immediate attention of the buyer can get in the way of a deal.

Agreements by Target Company with Employees as to Confidentiality, Post-Employment Non-Competition and Inventions and Improvements

Depending on the nature of the Target Company’s business, you may have to investigate very early in the negotiations whether the Target Company has appropriate written agreements with sales, technical or other employees as to Confidential Information, non-competition after cessation of employment, and assignment of inventions and improvements.

Provisions in the Target Company’s Lease

The obtaining of third-party consents in order to close a sale of a business can cost time and money and sometimes kill a deal. This is especially true in case of an asset sale which involves transfer of the seller’s lease or leases.   If you plan to operate the Target Company in place and it leases its facility from a third party, you might get a copy of the lease immediately. 

You will especially want to pay attention to the lease provisions as to the remaining term and renewal options, the use clause, the right of assignment, the landlord’s lien on the tenant’s property for unpaid rent and the respective rights and obligations with respect to repair and maintenance.

Environmental Investigation of the Company’s Facility

When the facility used by the Target Company is an environmental unknown by the time of the Asset Purchase Agreement or Stock Purchase Agreement, the negotiations regarding environmental contingencies and responsibility for clean-up costs, indemnifications and escrows are sometimes so difficult that deals die because of them; and quite often the buyer does not have time to delay the closing until all the environmental questions are answered and problems are remediate.

Accordingly, whether the Target Company owns or leases its facility, and whether or not New Jersey’s Industrial Site Recovery Act (“ISRA”) would apply, very early in the process you should require the Seller to disclose all information it has concerning the environmental history of the property.

Important Agreements with Third Parties

If the business of the Target Company depends on any key agreements with third parties (e.g. distributorship, license, franchise, sales representation, furnishing of a third party’s requirements for a product), make sure that these agreements, if possible, are in writing and protect against unreasonable termination.  If such an agreement is not in writing, or is not assignable, or is otherwise inadequate, you must make a risk assessment as to whether action by the third-party should be made a contingency of the deal and when and how by whom the third-party should be approached.