Lawyers often don’t have a good reputation, and at least in some cases, that can be for good reason.
What seems like a straight-forward deal can suddenly turn into the most complicated contractual minefield ever known to man, if you get a bad lawyer involved. What should have taken three weeks to complete, takes three months and let’s not even talk about how much it’s all going to cost…
In a nutshell, lawyers often don’t appear to be worth all the time, trouble and expense to the people who are using their services.
As we’ve said, if you’re dealing with a bad lawyer, there’s not much you can do to fix the problem. But sometimes, even good lawyers aren’t very good at explaining to their client what exactly it is they’re doing, and how it’s actually going to save their client a large fortune down the road (even though they appear to be paying a small fortune right now in legal fees…)
It’s bad PR. And it’s time to start fixing the problem.
How? By explaining to you what it is you’re paying for.
First, let’s split the legal process into its three main chunks:
1) Due Diligence
- This is the information gathering stage, and the stage in which problems can be spotted and dealt with, and the deal structured, or re-structured, accordingly. This stage can take anywhere from one week to several weeks, depending on the size and complexity of the business being sold.
2) Contract Drafting
- This is usually the bulk of the work. The Buyer’s solicitor usually prepares the first draft of the Sale & Purchase Agreement (SPA for short), and then this pings back and forth between the two sets of lawyers, often for several weeks. During that period, bits get added and bits get removed, until the parties are comfortable with the wording. One of the main sticking points is often the wording of Warranties and the Disclosure Letter . With contracts running from anything from 30 to more than 100 pages, this stage can take between a couple of weeks to several months.
- This means the signing of the agreement and the filing of notifications and transfers relating to the change of ownership. Usually, completion occurs on the same day the documents are signed and the money is handed over. However, if there are obligations that the Seller needs to fulfil before Completion, then these can take place between the date of signing the documents (then called ‘Exchange’) and a later date which is then called ‘Completion’.
If Exchange and Completion happens on the same day, then this is not a lengthy process, and the lawyers will deal with filing the documents in due course. However, if there needs to be a gap between Exchange and Completion, that can add another few weeks to the length of the deal.
In the old days, it was possible to buy a business on the back of a cigarette pack. But as business people have got ‘more creative’ in the way they buy and sell businesses the clauses needed to deal with potential repercussions have become longer, and the time and cost of putting together these deals have become a lot more significant..
When you arrive at your Completion meeting you shouldn’t be surprised to see that, rather than just one sales agreement, you end up signing more than 20 different documents.
I won’t bore you by describing a full list of all the documents you might encounter.
But you should expect to see the following documents in your deal:
- The Sale & Purchase Agreement.
- The Disclosure Letter.
- The Tax Deed.
- The IP Transfers.
- The Directors Resignation Letters.
- The Directors Service Contracts.
- Board Minutes, Shareholder Minutes and Resolutions.
- And many, many more…
All these documents take time to create, amend, discuss and finalise.
Most lawyers work on a time-taken basis (whether or not this is rolled-up into a fixed fee quote). So, the more complicated the deal, the more paperwork is needed and the longer it will take to agree. Unfortunately, all this can add up to a potentially larger bill at the end of the day.
So, what can you do to get the legal advice and coverage you need to do business, without the costs sky rocketing??
There’s a few things that can help you to keep your costs down as much as possible:
- Try to agree a fixed fee with your lawyer up-front, to avoid any unpleasant surprises.
- Help the deal along by providing your lawyer the information they need in good time.
- Give your counterpart (the Buyer / Seller) a kick in the pants if they (or their lawyer) start dragging their heels – every time your lawyer has to chase the other side or redraft the same document 15 times, it’s costing you time and money
Lastly, don’t be afraid to ask your lawyer what is going on – at any time.
Ask those annoying questions – like, ‘what is this piece of paper for?’, ‘why hasn’t anything happened in the last week?’ and ‘do we really need to review every customer contract for the last 15 years?’
A good lawyer will be delighted you asked, and a great lawyer will be delighted to actually answer your questions, in a way that you can clearly understand it all for yourself.