You are getting ready to buy (you hope) a business. With or without a broker (though you should have one) you want to make an offer. What document should you have? Either of the subject documents will suffice as a first step: However, the Letter of Intent (LT) kicks the can about two feet and the Buy-Sell or Asset Purchase Agreement (APA) gets to within 20 yards of the goal post. Why?
The LT is usually 1 – 2 pages and typically just says if all is right you might sign an APA. So, why not sign the APA, a much longer document, that has contingencies and typically all of other agreements that need to be hashed out at sometime. It gets the parties on the same page from the start on everything such as training, who is responsible for what, non-competes, employment after the transactions, etc. and leaves fewer things for consideration later on.
Obviously with either agreement, if in the course of investigating the business the buyer finds out that numbers don’t match or there is a law suit or some other problem in the business, the APA will need to be amended or the contingencies have triggered something large enough to cancel the transaction, not much has been lost in writing the APA. Most sales go forward if the business has been well represented from the start and likely the broker did most of the work anyway.
Taking the 30 minutes extra to write the APA makes sense.
