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Business Deal Terms

LETTER OF INTENT (LOI)—non-binding deal points—the handshake.

• Key Components—big business points, non-binding, confidentiality, exclusive negotiating period.
Must Watch For—unintentional binding clauses.

MEMORANDUM OF UNDERSTANDING (MOU)— short binding agreement until real agreements are developed.

• Key Components—big business points and some details, binding, confidentiality, period of time to draft formal agreements. Divorce clause if can’t.
Must Watch For—areas of disagreement created by ambiguity. One party usually trying to rush the other.

PURCHASE & SALE AGREEMENT (PSA)—usually for a real estate based transaction.

• Key Components—Title, Environmental, Indemnifications, Contingency Definitions, Contingency Period, Closing Date Deadlines and/or Extensions, Financing Structures, Remedies. May need small Asset Purchase Agreements and Assignment of Contracts. Rarely if ever “Sign & Close”.
Must Watch For—deadlines, approvals, disapprovals, waivers, deposit wars, business assets tied to the land.  Third Party environmental indemnifications that evaporate and/or recorded covenants that affect financing or resale.

STOCK PURCHASE AGREEMENT OR MEMBERSHIP INTEREST PURCHASE AGREEMENT  (SPA OR MIPA)– purchasing someone’s certificate of ownership in the existing entity.

• Favors Sellers with Capital Gain treatment and shedding of liabilities to the Buyer.
• Key Components—Lots of Representations & Warranties, Purchase Price Formula, Balance Sheet Adjustment Language, Financing Structures. Usually accompanied by employment/consulting agreements for Seller and/or key people.
Must Watch For—Liability issues—employment practices, employee benefits, taxes, vendors, others. Capital Expenditures required. Accounting Practices.

SUBSCRIPTION /REDEMPTION—purchasing newly issued shares/interests from company treasury or selling back to the company treasury.

Subscription
• Key Components—Securities Representations in the Appropriate Jurisdictions, Representations and Warranties, Financing Structures, Inclusion in Current Transfer and Operating Restrictions on the Owners.
Must Watch For—Investor Qualification & Disclosures

Redemption
• Key Components—Title Representations, Financing Structures, Compliance with Transfer Restriction Procedures
Must Watch For—Legal Prohibitions and Tax Issues

APA—ASSET PURCHASE AGREEMENT—purchasing the assets of a business, not the entity ownership.

• Favors Buyers—Due to stepped up basis on assets to depreciate and little if any liabilities.
• Key Components—Definition of Assets Purchased, Definition of Liabilities Assumed (if any), Financing Structures, Ancillary Agreements—Assignments, Bills of Sale, Assumptions, etc.
Must Watch For—Missing an Asset or Liability, Third Party Consents, Successor Liability issues with employees and vendors, Bulk Sales laws.