When purchasing another business, one of the most important aspects of due diligence is reviewing the selling business’ contracts. Often the selling business’ revenue stream is tied to some type of contract. For example, it may get income through services contracts, sales contracts, licensing contracts, or even insurance billing contracts. Accordingly, those types of contracts might actually represent most of the value of the seller’s business. The buyer is going to want to make sure that those valuable contracts are assignable to a new entity (the buyer) and remain in effect after the sale. Inability to assign crucial contracts to the buyer may affect the purchase price or even doom the entire transaction.
Second, a review of contracts shows how a selling business conducts its operations. Who are their vendors and suppliers? What consultants and professionals do they rely on? What substantial assets and services does the seller need to conduct its business? The answers to these questions are generally found in a business’ contracts. Review of such contracts can give the buyer a clearer picture of not only what is necessary to operate the selling business but also how well a particular business operates.
Finally, a selling business’ contracts are often the largest liabilities of the selling business. The contracts to which the selling business is a party will show its obligations. Some of these liabilities might arise through contracts entered into in the ordinary course of business, such as leases or loans, and some liabilities might arise through contracts outside of the ordinary course of business, such as non-competition agreements or settlement agreements.
A proper review of the selling business’ contracts is necessary to ensure that the buyer is getting what it actually bargained for and that the purchase price reflects the true value of the selling business. For more information on buying and selling businesses, contract law or other business matters, please contact PLDO Attorney Joshua J. Butera at 401-824-5100 or email jbutera@pldolaw.com.
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Joshua J. Butera is an Associate with Pannone Lopes Devereaux & O'Gara LLC and a member of the Corporate & Business Law and Municipal Law teams. He concentrates his practice assisting clients in the areas of corporate compliance, administrative and regulatory law, policy and contract law and other general private and public sector issues. He is a skilled legal researcher and writer and has assisted in the representation of individuals, private organizations and public agencies on numerous legal matters before state and federal courts.
Attorney Butera is a former Special Counsel in the Office of Governor Gina Raimondo, where he conducted legal research and analysis on a wide range of legislative issues and public policies. He drafted briefs before the Rhode Island Supreme Court and Superior Court and prepared FOIA responses and other memoranda. In this position, he also advised senior staff on legal matters and policies related to the Rhode Island Department of Transportation, the Rhode Island Public Transit Authority and the Rhode Island Airport Corporation. Prior to his public service for the State of Rhode Island, he worked in the litigation department of an international law firm representing clients in numerous areas of the law including contract law, the Fair Housing Act and the False Claims Act. He also represented pro bono clients regarding landlord/tenant disputes, asylum cases and the Individuals with Disabilities Education Act.
Attorney Butera earned his J.D. from Boston University School of Law, cum laude, and was the Managing Editor of the Boston University Law Review. He is a Melville M. Bigelow Scholarship awardee and a recipient of the G. Joseph Tauro Distinguished Scholar. While in law school, he served as a judicial intern for the Honorable John J. McConnell, Jr. of the United States District Court for the District of Rhode Island and in the U.S. Attorney's Office for the District of Massachusetts. He graduated from Brown University with a B.A. in Political Science. Attorney Butera is admitted to practice law in Rhode Island and Massachusetts and before the U.S. District Courts for the Districts of Rhode Island and Massachusetts. To contact Attorney Butera, please call 401-824-5100 or email jbutera@pldolaw.com.