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What are the different types of buyout arrangements that exist?

| Feb 13, 2020 | Business Law |

Many individuals who decide to go into business here in Oakland County do so with the expectation of simply making money to cover their necessities. Many entrepreneurs dream about someone wanting to buy their company. If someone has approached you to purchase your company, however, it’s smart to explore the buyout options that exist before committing to any of them.

An acquisition is perhaps the most common type of buyout. This usually involves a larger company offering to buy a smaller one. The latter often becomes a subsidiary of the former when this happens.

Larger companies may acquire smaller ones to give them a competitive advantage or to acquire intellectual property rights. The larger corporation will often broker a deal that allows them to keep the smaller company’s assets and staff after the buyout.

Another common type of buyout is a leveraged one. A prospective buyer may first inquire about an owner’s interest in selling their company. It’s only if the prospect’s leadership seems open to this that a buyer may request funding for the acquisition. Buyers that don’t have enough funding to acquire the new company may ask the seller to put up their business’ assets necessary to purchase it.

Employee buyouts are also common. This often happens in instances in which there’s poor leadership in place. Workers who are employed by a business that is about to shut down may try to raise enough money to buy their company so that they don’t lose their jobs.

Another buyout option that business owners often pursue is an initial public offering (IPO). You, as the company owner, must register your business with the stock exchange. You can then sell ownership shares in it. Your shareholders can be investors, other business owners and the general public if you go down the IPO route. You may sell off only a portion of your Michigan business or the whole thing by initiating this process.

If there’s one part of the buyout process that’s difficult, it’s removing emotions from the mix when brokering a deal. You may want to consider allowing a business law attorney to handle all the negotiating for you. Your lawyer can take into account your expressed goals and help you broker a deal that is most aligned with them.

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