We have been approved for a small business loan. Purchased a sole proprietor successful postal business in Sacramento Ca. Temporarily we will be keeping it as sole proprietor. Seller owns another postal business, exact same type of business and exact same type of name approximately 3 miles away. The other business is for sale as well. Legal advise has informed us seller must change the name of his other business listed for sale as well, regardless of the fact it is also for sale. We are purchasing an asset business and the name is part of the asset we are buying. In addition, we were advised we are paying for the name over and above the book value of the business. Seller and broker who by the way represents both seller/buyer both agree that this is incorrect and seller does not have to legally change his name. We cannot transition from underwriting into escrow until this is resolved and this week it must be resolved or an entire new contract will be required. My question is this:
From a legal standpoint, are they required to change the name of the other business?
Or, is it merely something they should do, but aren't agreeing to? In other words, it is in our best interest to insist they do this?
If not, is it a deal breaker? Our concern is, when we change name (ownership) under the name of the existing business, there will be a conflict since his other business has exact same name. Thank you very much.
Answer
There's no way to tell you exactly what your rights and the seller's obligations are without reading your contract. We certainly can't tell you what's in your best interest, since that's more of a business decision than a legal one.
You should discuss your concerns in detail with a lawyer. You must have done so already, since you say you're already getting legal advice. If you want a second opinion you should pay a second attorney, who can advise you after learning the relevant facts. Asking a bunch of lawyers who don't have those facts -- and who offer only general guidance on this site anyway -- is no substitute for an informed legal opinion.
Feel free to contact me directly if you want to discuss your options further.
Good luck.
Answer
Most business sale agreements have some provisions regarding competition by the seller. If yours doesn't, you'll have a more difficult case. Nevertheless, I'd say there may be an implied term in a business acquisition contract that the seller won't compete directly with the sold business, especially in this manner. I agree that you should take your documents to an attorney with a specialization in business transactions.
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