Advantages of Buying Over
You get to acquire existing goodwill such as customer base, marketing leverage, employees and infrastructures. Costs for operating an existing business is also much lower than a new one. Plus, a current company could also have patents, trademarks or copyrights, which are valuable to business expansion.
Checklist for Buying Over
Once you decide to buy over an existing business, you have to start with a due diligence checklist. An example could look something like this:
- Business Reputation: You can find out more about the business reputation by talking to its competitors. You could also weed out potential problems if any of them mentions it.
- Financial Disclosure: You may need to hire a lawyer and an accountant for this process. With a complete financial document, you get to understand the company cash flow and make a better evaluation.
- Assets and liabilities: Most companies would have tangible and intangible assets as well as obligations. It is essential to understand what you are about to face when you take over. For instance, intangible assets are intellectual property that the company owns. The target company could also have innovations not yet patented.
- Essential contracts: The target company could have sustained due to multiple reasons. One of them is having useful agreements with suppliers, vendors, landlord, and key employees.
- Licensing and permits: If the target company operates within an industry, surely it has to comply with industry regulations. Hence, the company should have proper permissions and licensing to operate.
Process of Buying Over
Now that you are more determined to buy over that business, follow the process to get things going.
Step 1: Negotiate
Start negotiating with the seller or business owner. Negotiations go beyond the price, and it should comprise of whether the takeover is an asset takeover or equity acquisition. As a buyer, you should also take note of employee condition and any particular condition that must occur before the complete sale. Asset acquisition is buying over selected company assets to ensure continuous operation. Equity acquisition is buying over the significant shareholding in the company. During this stage, you, through your lawyer, can prepare the “Letter of Intent” stating all material aspects agreed upon. This is only as a basis before drafting an agreement. In the letter, you should also include a statement that negotiations are exclusive to both parties. This means that either party cannot go into negotiations with others simultaneously.
Step 2: Drafting the Agreement
Your lawyer should now draft the sales and purchase agreement (SPA) detailing all issues. Most of the time, more negotiations follow throughout this process. As a buyer, this is where you require warranties for all matters. For instance, the seller should assure that all financial records are complete and accurate. Other matters may warrant for work in progress, vendor contracts and current employees.
Step 3: Notify SSM
When you have completed the business sale, you would have to notify the SSM in Malaysia. This process must complete within 14 days to inform them of any changes to the business’ name, the appointment of office director, change of shareholding and registered address if any.