Business Purchases – What do you get for your money?
Purchasing an existing business can sometimes be a stressful exercise. Questions such as “what market share does the business have?”, “will the product sell?” and “what revenue must I make to pay my bills?” arise. An additional question, which is sometimes overlooked, is “what do I get for my money?”
In a recent case, we were asked to enforce a right that arose from a confidentiality agreement between the proprietors of the business and a former employee. The former employee accessed and marketed to clients from the business’ database to retain those clients for the former employee’s own business pursuits.
The question at play was whether the rights stemming from the confidentiality agreement passed to our clients upon the purchase. The business acquisition was not appropriately documented and the issue of whether the rights passed became blurred.
Intellectual property and confidentiality are important issued for small business. Although there are laws protecting business, it can sometimes be difficult or expensive to bring the matter before a Court for determination.
In any transaction, it is important to fully document the intention of the parties and the outcome sought by each of them.
In this particular case, the business purchased had rights pursuant to the confidentiality agreements however; the former employee alleged the agreement was with the business proprietor and did not pass with the purchase.
While the action is being played out in the Courts, the question can be avoided by appropriately documenting what is actually passing to a purchaser of a business; a properly drafted contract is a solid step to protect your interests.
To overcome issues of this nature arising, we urge potential business owners to consult with us and appropriately document their acquisition, to eliminate problems that arise through ambiguity and uncertainty.