How do I buy a business in Florida?
The process of buying a business is notably different in Florida than in other states. It is different because, for many “main street” deals, they are treated very similarly to real estate transactions. The parties, particularly when a business broker is involved, use purchase agreements provided by the Business Brokers of Florida (BBF).
Florida Asset Purchase Agreements
What I’ve seen is that, instead of a buyer presenting a Letter of Intent (LOI) to a seller, the buyer presents the BBF’s form asset purchase agreement. This is similar to many real estate transactions where the buyer uses a form real estate contract, then the attorneys get involved for an “attorney review period” and negotiate the specifics of the deal using addendums. In other states, buyers use a generally non-binding LOI to make an offer to the seller, and then the parties go through due diligence while negotiating the specifics of the asset purchase agreement.
However, if a buyer makes an offer using a form asset purchase agreement, they should check the “review period” which specifies how long the parties have to review the APA and negotiate any deal-specific terms. The review period could be as little as five days so it’s important for the parties to have their own attorneys lined up or to negotiate a longer contract review period. Otherwise, attorneys will not be available or willing to review or negotiate a contract with such a small window review period.
Florida Acquisitions Use Transaction Attorneys
In Florida, particularly for smaller deals (under $250,000), it is common for the parties to hire a neutral, third-party lawyer as the “transaction attorney.” The role of the transaction attorney is to provide the correct purchase agreements, ensure that the closing occurs smoothly, and proper documents are signed. The transaction attorney does not provide legal advice to the individual parties, so if you have a specific question or want to negotiate a specific term of the deal, the transaction attorney likely cannot help you because it would be a conflict of interest. The respective party would have to hire their lawyer to ask those questions or further negotiate the deal. This is different for other states (such as Illinois) where it is customary for the buyer to draft the purchase agreements.
If a transaction attorney is the only attorney involved, the buyer and seller typically split the transaction attorney’s legal fees. If each party has their own attorney, then there may be three attorneys on the deal, and the seller and buyer each pay their own lawyer and split the fee of the transaction attorney.
In my experience, if each party has their own attorneys, then a transaction attorney is not necessary and is only an added expense. Otherwise, a transaction attorney may be useful for very small, low-risk deals.
Don’t Skimp on Due Diligence When Buying a Business in Florida
Do not be fooled that a deal is “easy” because templates are being used, or think that just because a purchase agreement is “standard” then it will protect you from the risks that are specific to your deal. Be sure to ask for corporate documents to make sure that the seller has full authority to sell the business (e.g. there are no secret business partners or he or she actually owns the business in their name), that all necessary licenses get transferred properly, get tax clearances, and have a strategy for transferring employees. With form types of contracts, parties often make those changes using addendums instead of changing the original contract itself. With that said, document addendums clearly, otherwise misunderstandings and disputes can happen.