Closing the Deal:
Tax Clearances and other Legal Requirements

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The Purchasers attorney will usually prepare the Agreement of Sale, Covenant Not To Compete and other similar documents since they include various warranties, representations, and guarantees of the seller. They can also have an adverse effect on the future of the business. By the same token, the sellers attorney will normally prepare the Note Agreement, Stock Pledges, and Security Agreements because they are usually designed to protect the seller in the event that a default should occur some time in the future.

The legal procedures involved in buying an existing business can become quite complex. Even if you are a do-it-yourselves, you should seek the services of a competent business attorney to represent you. In order to ensure that you are protected as fully as possible, have your attorney take care of the following items in connection with the purchase:

1) review the structure of the deal, including the actual sale agreement documents. If your attorney is not a tax specialist, it would also be wise to have an accountant review the terms of the agreement and advise you on possible ways to structure it better for tax purposes including the purchase price allocation.

2) Comply with the local Bulk Sale or BulkTransfer Act. In most states, the buyer of a retail or wholesale establishment or certain other types of businesses must prepare a "Notice to Creditors of Bulk Transfer" and, usually, file it in counties where the business operates. This notice is also published in a general circulation newspaper prior to the purchase of the business. If this is not done, the seller's unsecured creditors may attach the property that you thought you were buying free and clear.