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Business

The Importance of Due Diligence: What Business Owners Need to Know When Buying a Business

When you’re in the process of a business merger or acquisition, you need to perform a detailed review to understand its current status, assess potential risks, and ensure that the business assets have been accurately represented as described in the offer letter. This process is called due diligence. When acquiring a business, the due diligence process can be detailed and complicated. You’ll want an experienced business lawyer in Orlando, like our team at The Boutty Law Firm, to help ensure you make a good investment. Here’s what business owners should know about the due diligence process during business transactions.

What is Due Diligence, and Why Does It Matter?

Due diligence is the process of performing an in-depth inspection and analysis of the business before you purchase it. Like buying a used car, due diligence allows you to “look under the hood” of the business to ensure everything is in proper working order and that you’re making a sound investment. Due diligence is performed during any business transaction, such as a merger, acquisition, investment, or partnership. The goal of due diligence is to ensure that the buyer is making a good investment and understands any potential risks or liabilities before officially buying the business.

Due diligence is important because it helps you avoid surprises with the business you want to purchase. It will help you protect your time and money by ensuring you’re investing in an upstanding business that the seller has accurately depicted. Due diligence will also help you make informed business decisions and develop the acquisition plan so you can run the business after the transaction is complete.

Types of Due Diligence

By looking at each area of the business you want to buy, you’ll get a complete picture of the current business standing and be better equipped to make decisions regarding the business. Here are the types of due diligence you should perform when undergoing a business transaction:

Financial

 During financial due diligence, you’ll get a complete and comprehensive overview of the business’ financial status. You will gather relevant financial documentation such as three to five years’ worth of business tax returns, bank statements, balance sheets, profit and loss statements, financial audits, reports, and information about any business debt. You’ll also want to know how the business handles cash flow.

Legal

You’ll want assistance from a business lawyer in Orlando to help perform legal due diligence. During this time, you’ll review partner or supplier contracts to see what established partnerships are already in place. This is also when any risks or liabilities will be reviewed. Your lawyer will review contracts, established agreements, and any pending lawsuits or legal risks associated with the business.

Operational

During operational due diligence, you’ll learn how the business operates on a day-to-day basis. You’ll assess risks and challenges with the current operations so you can make potential improvements once the transaction is complete. You’ll want to investigate whether there are any issues, liabilities, or risks that could set the business up for failure now or in the future. You may wish to speak with employees during this time to get an accurate perspective of the business operations. You’ll also want to review customer satisfaction with the company and assess for improvements.

Technology

Technology is integral to most business operations, so you’ll want to review the current patents, software, and programs it utilizes. You’ll check the business’ cybersecurity protocols, review CRMs and databases, and evaluate current software or apps.

How to Perform Due Diligence

Due diligence can be as simple as reviewing the business’ accounting software or as complicated as having a team of business lawyers perform a detailed analysis that lasts several weeks. Here is how the due diligence process works:

Gather Your Team

You’ll want to assemble your team of Orlando business lawyers, accountants, and industry experts to give you trusted advice about the business’ status. Due diligence is performed after an offer has been accepted and before closing. Many companies aren’t willing to provide the documentation needed to perform a full due diligence report before an offer has been made, so keep that in mind.

Compile Documentation

One of the most tedious and detailed parts of performing due diligence is gathering the paperwork to review. You’ll need to request financial documentation from the business seller, review contracts the business has made with others, interview employees and stakeholders, and audit the current business operations. It’s crucial to stay organized during this process.

Review and Analyze

Your Orlando business lawyer, accountant, and expert team will compile the documentation and conduct a thorough analysis and audit. Findings will be crafted into detailed reports stating the business’ health, risks, and liabilities.

Determination

The end goal of due diligence is to decide whether you should proceed with the business transaction. Performing due diligence will allow you to get an accurate view of the business so you know what you’re getting into. Once the assessment has been made and risks or liabilities have been identified, you can proceed with closing the transaction and start to draft the purchase agreement.

The Boutty Law Firm: Business Lawyer in Orlando

Our team at the Boutty Law Firm is experienced in performing due diligence for many business transactions. We’ll help you ensure the terms for your letter of intent (LOI) are represented accurately. After that, your lawyer will help draft the purchase agreement, and you can start the closing process. Contact us at 407-622-1395 or schedule a consultation online to discuss how we may aid you in acquiring a business.

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HHC-Blog

Understanding Indemnification Clauses

Indemnification clauses can be found in various business contracts, from commercial construction corporations to 1099 gig contractors. Though it’s a common clause in many contracts, it’s the source of confusion for many. Understanding the purpose and elements of indemnification clauses is essential, whether you’ve been asked to sign a contract with an indemnification clause or a business owner looking to protect your business with the same clause. Learn more about what indemnification clauses are below.   

What’s an Indemnification Clause?  

Indemnification clauses are designed to protect or “hold harmless” one party from the liabilities and damages caused by another party. Indemnification clauses free you from the responsibility of paying for damages someone may suffer at your business or job site due to actions by a third party. In business contracts, indemnification clauses specify that a third party (not your business) is responsible for compensating someone due to the actions of another party.  

Purpose of an Indemnification Clause 

The primary purpose of an indemnification clause is to make another party responsible for paying for the losses, damages, and out-of-pocket expenses of defending your business in court if someone should sue your company under specific circumstances. When you indemnify someone, you’re taking on the responsibility to pay for the losses and damages on behalf of another party.  

Examples of Indemnification Clauses 

Here are a few examples of how indemnification clauses work in real-life scenarios:  

  1. A landlord leases a building to a dance studio. The landlord adds an indemnification clause to the leasing contract, which states that the dance studio is responsible for paying for any damages and court costs if someone sues the dance studio after suffering an injury at the facility.  
  1. A wedding venue contracts a DJ. During the festivities, a wedding guest trips on one of the DJ’s power cords and is injured. The wedding guest sues the venue and DJ. Since there was an indemnification clause in the DJ’s contract, the DJ is responsible for reimbursing the wedding venue’s costs of defending themselves in court and the fees for the lawsuit brought against them.  
  1. A business owner hires a commercial contractor to outfit a new office building. During construction, a pipe burst and water spilled on the floor. A customer walked by and slipped and fell. The customer sues the business owner. However, since the business owner included an indemnity clause in their contract, the contractor is responsible for reimbursing the business for the customer’s losses and damages.   

Elements of Indemnification Clauses  

Indemnification clauses should be narrow in scope and specific. Vaguely worded clauses are hard to defend in court. Several elements need to be included to craft an effective indemnification clause. First, language such as “defend,” “hold harmless,” or “indemnify” should be included in the clause. The clause should name the indemnifying party (the person responsible for paying damages) and the indemnified party (the person who suffered the harm or loss). The clause should state specific events and instances that would cause this clause to take effect, along with the maximum compensation a company would receive for out-of-pocket expenses and court fees. The clause should also include types of exclusions and a statute of limitations for when claims can be brought against the indemnifying party.  

Drafting Indemnification Clauses in Business Contracts  

In Florida, indemnification clauses for construction contracts must follow the guidelines stated in Florida Statute 725.06. Indemnification clauses are a highly complex aspect of business contracts, so it’s important to have experienced business attorneys like the ones at The Boutty Law Firm help you draft and review the indemnification clause to ensure its legally enforceable. Call our office at (407) 622-1395 or use our online live chat feature to get started.

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Canceled,Contract.,Business,Woman,Tearing,Up,A,Document,,Contract,Or

What is Considered a Breach of Contract?

Contracts are an essential part of any business relationship, whether you are a freelancer, a small business owner, or the CEO of an international corporation. Contracts ensure both parties are on the same page regarding payment terms, conditions, and details about how a service will be provided or a product will be delivered. Breaches of contracts occur when one party fails to adhere to or perform one of the tasks listed in the contract. When this happens, you may need to go to court to recover damages caused by the breach. Below, we discuss how to determine if a breach of contract occurred and what to do about it.

Was a Valid Contract in Place?

There must be a legally binding contract in place for a breach of contract to have occurred. Legally binding contracts must be in writing and have the following elements:

  • Offer—A service or product that is exchanged for something of value.
  • Consideration—The item of value. It is important to note that not all considerations are monetary.
  • Acceptance—An action that shows both parties agree to the terms. Signing a contract or putting down a deposit are forms of acceptance.

Did a Material Breach Occur?

Material breaches occur when one party fails to perform a critical action listed in the contract. You must prove there was a significant violation of your agreement that caused harm to you or your business. You must show you attempted to follow the terms of the contract and that the defendant had everything needed to perform his or her duties. Minute details like a typo in the agreement would not be considered a material breach.

Did the Breach Cause Damage?

The other party’s failure to fulfill the contract must have caused quantifiable monetary damages. Here are the types of damages that a breach of contract may cause:

General Damages

General damages are direct monetary losses caused by the contract breach. They can include the cost of replacing a product that failed to be delivered.

Special Damages

These damages are indirect damages caused by the breach but not directly related to it. They could include profit losses due to delays in getting the product or service. To seek compensation for special damages, you will need to show you took steps to mitigate your damages as much as possible (such as finding a new vendor or doing the task yourself).

Expectation Damages

Expectation damages provide monetary compensation for the value the product or service would have provided to your business. It includes the potential profit your company could have gained if you sold the product as originally stated in the contract.

Rescission

Rescission voids the contract entirely, stating the breach was so substantial that it is no longer legally binding. When this occurs, you do not need to pay for any services. The contract is canceled, and you are entitled to a full refund.

Boutty Law Firm: Central Florida Business Attorney

Contract breaches can cost your business a significant amount of time and money. Let the Boutty Law Firm defend your rights and help your business get back on track. We help business owners in Seminole and Orange counties in all aspects of business and real estate law. Call us at 407-710-0461 or visit our office in Maitland to discuss your case.

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zoninglaws

How Do Community Zoning Laws Affect Your Business Expansion?

Zoning laws exist to help communities expand and grow effectively. Community zoning laws help create thriving economies with space for different types of businesses and residential properties. Zoning is usually part of a town’s “master plan,” a comprehensive strategy of how the city would like to grow in the future. Zoning is an important legal matter because it determines where you may build a commercial structure, open a new business, or construct a home or subdivision. Therefore, it is essential to understand how a local municipality’s zoning laws will affect your plans to build a new home or business. 

What are zoning laws? 

Zoning laws are legal ordinances that divide the land in a city or town into distinct sections, called districts. Zoning regulations specify what kinds of structures can be put in specific community areas, restricting the type of buildings allowed within the particular district. They also regulate the building size and location, such as how tall the building can be, lot size, density of the surrounding area, and square footage. 

Why are zoning laws necessary? 

Restricting the types of businesses and structures within a district allows for different enterprises to flourish. Zoning laws can influence the overall community structure and tone. For instance, by separating commercial zones from residential ones, homeowners can live in an area with limited traffic and less noise than if a commercial building was allowed in the same place. Zoning laws can also help restore and maintain the historic integrity of a particular area, as seen in the historic downtowns of many of the cities located in Central Florida. 

Local zoning districts 

Zoning districts may vary between individual cities, but generally, they fall into categories and subcategories of commercial and residential properties. For example, in Orange County, there are five zoning districts: 

Commercial 

This zoning district may include office spaces, wholesale commercial structures, retail shopping complexes, and stores. 

Industrial 

Industrial zones are for factories, manufacturing plants, and storage facilities. In Orange County, there are three subcategories of industrial zones: light, medium, and heavy. 

Residential 

Just like industrial districts, there are several subcategories within this zoning district as well. Residential communities may include specified rural areas, mobile home parks, University residential districts, urban villages, and residential subdivisions.  

Agricultural 

Agricultural zones include farmland. In Orange County, there is even a special denotation for citrus farming.

Rezoning

 If you are looking to open a business in an area that is not currently zoned for it, you can apply to amend the current zoning code. To apply to amend the zoning district, you will need to contact the county’s Planning Division. Suppose there is a disagreement about what type of district your business belongs to. In that case, there may need to be a public hearing where people can voice their opinions on the new construction. 

Central Florida zoning and land use attorneys 

The Boutty Law Firm offers experienced real estate attorneys who guide you through various real estate-related issues such as applying for the correct permits, negotiating, and litigating real estate issues. Contact our Maitland office at 407-622-1395 to get started. 

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business contract

What Makes a Contract Legally Binding in Florida?

A contract is an agreement between people or entities where one party agrees to perform a service or deliver goods for something of value. Contracts help define the terms of partnerships and make sure everyone is on the same page when providing goods and services. However, is every piece of paper signed by two parties legally binding? Whether you are offering freelance services or merging corporations, all contracts need the following elements to be legally binding. 

Offer 

In a contract, there must be a specified action offered in exchange for something of value. The action could be the delivery of a product or the performance of a service. The contract should specify the details of that product or service, including the scope of work, timeframe for delivery, and compensation. A contract must have the capacity to be fulfilled to be legally binding, meaning the person entering the contract must be able to perform the duties specified and be of legal age to do so.  

Consideration 

The offer must be in exchange for something of value, which is called the consideration. The consideration solidifies the transaction between the promise of one party and the payment from another. The consideration is often money for the product or service; however, the only stipulation is that the consideration is something of value to be legally binding. Whatever the consideration is, make sure it is clearly stated in the contract. 

Acceptance 

The third crucial element of a legally binding contract is acceptance. Signing a written contract is one of the most straightforward ways to specify acceptance, but that is not the only way. The other party can also administer acceptance orally or through a video, email, or text. Florida law requires specific contracts to be in written form to be enforceable, such as real estate ventures, when the contract terms cannot be completed in one year. There may be some instances when requiring a single signature at the bottom of a contract is not enough to make it legally binding. In these cases, both parties may need to initial specific clauses.

Mutuality

The last element of a legally binding contract is to ensure both parties mutually understand and agree to its terms. Referred to as a “meeting of the minds,” there must be evidence that both parties understood all aspects of the contract and are entering it willfully. Signing a legally binding contract is one way to show mutuality. Even if a contract is not signed, specific actions such as distributing payment or agreeing to terms in an email may also prove to a court that both parties understand and agree to the offer, consideration, and terms. 

Central Florida business Attorney 

Our experienced commercial lawyers at The Boutty Law Firm can help draft legally binding contracts that protect you and your business from legal issues down the road. If you need to sign a contract and are unsure what it means, do not sign it without speaking with a business attorney. Call our office at 407-622-1395 and schedule a consultation today. 

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