Purchase Prudence: 5 Questions to Ask Before You Sign a Contract

Purchase Prudence: 5 Questions to Ask Before You Sign a Contract

Of all the agreements your company signs, few carry more potential, or more risk, than a merger or acquisition purchase agreement. Fusing your company with another gives you access to new resources, clientele, and skills, but it also connects you to the other firm’s scandals and liabilities. You should thus never sign a purchase contract without a satisfactory answer to the following questions:

What is the state of this company’s finances?

After you merge with or acquire another company, its financial health will be linked to your own, so make sure it is solvent, or at least salvageable. Obtain financial statements for every quarter or month of the past three years. Pay attention not only to its current profitability, but also to financial trends. If a company is profitable but its margins have been steadily declining, it may well suffer losses in the near future. You should also make sure your purchase contract has a clear definition for working capital.

How does this company treat intellectual property?

If the firm you are merging with controls valuable patents, trademarks, or copyrighted works, you may be excited to gain access to them and use them for the benefit of your own brand. Just knowing what the other company owns, however, is not enough; you also have to assess how it deals with intellectual property issues.

Pay attention to the steps the firm takes to protect its intellectual property, which may include making contractors and employees sign invention assignment and confidentiality agreements. Inadequate protections could expose your company to outside infringement, while too stringent ones may limit what you do. You should also determine whether the other firm has been accused of copyright infringement in the past, and if so, how it has responded.

What materials contracts has this company signed?

The other company has likely signed a variety of materials agreements, including franchise contracts, loans, franchise rights, collective bargaining agreements, and past purchase contract deals. These contracts could affect your own operations. Franchise agreements, for example, may require you not to do business in certain areas or ways in order to protect franchisees’ rights. Likewise, collective bargaining agreements may govern how the other firm’s employees can interact with your own. Make sure you understand all of these factors in detail before singing a purchase contract.

What legal disputes has this company been involved in?

When considering a purchase contract, review all of the past and current legal challenges involving the firm. These include not only lawsuits, but settled issues, issues in arbitration or mediation, court orders, and threatened claims, both made against the firm and made by it. Not only will such disputes create costs for that firm, which will affect your finances, but they also affect the firm’s public image. The last thing you want is to be associated with a reputation for legally dubious behavior.

Douglas Park Law offers the legal insight and support you need for a successful purchase contract. For more information on mergers and acquisitions, intellectual property, employment agreements, and other business issues in Atlanta, contact us today.



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