This article addresses some of the more important issues you should know before investing in or buying a business in Florida. While the author is a Florida-licensed attorney who is recognized by the Florida Bar as an expert in business litigation law, this article is not meant to provide legal advice or to form an attorney-client relationship. It is meant only to provide general information about this topic. Each situation is different so it is best to consult with an attorney as to your particular circumstances.
Any party contemplating investing in an existing Florida business or buying one should know that Florida law deems those who participate in business ventures to be sophisticated business people to a certain degree. Therefore, is in incumbent upon that party to perform due diligence before closing on the transaction. The level and amount of due diligence is highly specific to the transaction and to the degree that the investor or buyer believes appropriate and proper for the particular situation.
Such due diligence may include reviews of the internal financial operations and health of the business. Such due diligence may also include, but is not limited to, investigations of the community in which the business operates and the demographics of its customer base. Financial professionals, such as CPAs, along with business valuation experts and business brokers can provide assistance and guidance in determining the health of a business and the veracity of the seller’s representations in your due diligence.
Investing in a going concern may be seen as an alternative to traditional investments, such as the stock or real estate markets. The investor should begin by requesting the opportunity to perform an examination of the corporate formation documents, as well as its books and records. Florida law requires businesses to maintain certain books and records and these can illuminate the manner in which the business has been operated for the investor.
Where someone invests in a business, the investor will ultimately want to have his or her investment clearly documented in the corporate books and records. Before making the decision to invest, however, it is prudent to seek the advice of attorneys that practice in the area of corporate and commercial law as to how best to structure and document the investment. Consulting with such professionals will help the investor to understand the liabilities that the investor may potentially assume and how to craft the transaction in such a manner as to minimize or avoid such exposure if that is the investor’s goal.
With regard to buying an existing business, generally purchasers only buy some or all of the assets of a business to avoid any potential liabilities that may have attached to the business itself. However, in some instances it may be beneficial to purchase the business entity, as well. For example, it may be beneficial to include the business entity in the transaction where its years in existence have great weight in the community and the buyer will be able to build upon that aspect. Also, the business entity may hold non-transferable licenses, rights, or other assets that will be of great importance and value in the future. In either case, the importance of engaging experienced counsel and performing due diligence is similar to investing in a business and should not be overlooked.
While purchasers and investors both are entitled to rely on certain representations of the seller, Florida law has grown increasingly complex as to whether the reliance is justified and proper and to what degree it impacted or even obviated the investor’s obligation to verify the information. Relying entirely on representations of the business without performing any independent verification may place the investor or buyer in a precarious position later and cause that party to incur substantial litigation expenses that it might otherwise have avoided. Those who fail to conduct any pre-purchase investigation fall within the saying “those who fail to plan, plan to fail”. Thus, the best initial approach after identifying either an investment or purchase opportunity is to engage the services of qualified experts to assist in the due diligence process and identify those representations on which the investor or buyer might want to focus.
As with most matters, one important action to undertake from the beginning of the transaction is to maintain clear records, particularly of any representations made by the seller to induce the investment or purchase. What any investor or buyer should know is that Florida law distinguishes between certain representations that can be deemed opinions from those that are material and false or fraudulent. In certain situations the buyer may not be able to uncover such deception through its due diligence as the true facts may be well disguised by the seller. If it later becomes necessary to engage the seller in litigation over the representations, proper and thorough documentation from early in the process will greatly aid the buyer or investor in presenting a full and complete picture to the Judge or jury. Experienced business attorneys can provide assistance and guidance on this documentation.
It is also equally important to clearly document the closing of the transaction. By so doing, the parties can have a clear understanding of the scope of the transfer and make it easier to enforce their rights if need be, post-closing. For example, closing on the purchase of business assets without properly defining them can cause confusion later and spark a dispute that was avoidable through clear documentation. Seeking and obtaining proper counsel and advice from a Florida-licensed attorney with experience and expertise in business law early and throughout the process can increase the chances of having a trouble-free transaction.
The Florida Bar recognizes those attorneys who are experts in the business litigation field with Board Certification in Business Litigation Law. To attain such recognition, attorneys must try a certain number of jury and non-jury trials, pass a comprehensive examination, and receive satisfactory reviews from their peers and Judges before whom they have practiced. A complete listing of Board Certified attorneys in Business Litigation Law and other areas is available on the Florida Bar’s website at www.flabar.org