THE CORPORATE TRANSPARENCY ACT REPORTING REQUIREMENT

By: Daniel J. Fetter, Esq. The SMB M&A series provides insights into buying and selling a small business. If buying or selling a business, you may have heard of a "Letter of Intent" or "LOI". What is it and why is it important? The LOI is a non-binding offer that allows the parties to agree at a high level on certain key terms and conditions of a proposed deal. Starting with an LOI can make the deal process more efficient as it creates a roadmap when drafting and negotiating the definitive agreements. The LOI typically includes the following terms/conditions: Transaction Structure . In most cases, the LOI will specify the transaction structure – whether the buyer is acquiring the stock or assets or some other type of arrangement. Purchase Price and Method of Payment . It sets forth the purchase price or how the purchase price will be determined, including any post-closing price adjustments or working capital calculations. The LOI will also address how the purchase price will be paid (cash, seller financing, debt assumption, equity, etc.). Due Diligence . The LOI will outline the time period for the Buyer to conduct its due diligence investigation (typically 30-90 days after signing the LOI) and the limitations around that investigation (e.g., when the Buyer can contact employees and customers). The due diligence investigation will allow the Buyer to inspect the business from a financial, legal and tax standpoint. Conditions . It may include certain conditions that must be met for the parties to proceed with the transaction, including Buyer obtaining financing and/or any necessary government or third-party approvals. Exclusivity . The LOI will typically include an "exclusivity" or "no shop" clause that prohibits the Seller from entertaining other offers from prospective buyers for a period of time. Generally speaking, the LOI is non-binding and cannot force a buyer or seller to proceed with the transaction. With that said, however, there are certain provisions which create binding obligations on the parties, including: (a) each party will cover their own expenses in pursuit of the transaction; (b) the governing law applied to the LOI; (c) the confidential nature of the proposed transaction; and most importantly (d) the exclusivity clause discussed above. The Scolaro Law Firm handles small business M&A transactions throughout New York State, Vermont, Pennsylvania and Florida. If you are interested in buying/selling a business, please contact Daniel Fetter or the attorney at our firm with whom you work. This article is intended to be for informational and discussion purposes only and is not to be construed as legal advice or as a legal opinion on which certain actions should or should not be taken.