When buying or selling a store, there are things you have to take care of and things you have to watch out for. It is important to have the correct documents and to make sure that the documents are thoroughly negotiated, so that not only can you have the best possible deal, but you can also be sure that nothing will come back to haunt you later. Whether you are dealing with a convenience store, grocery, furniture or mattress store, liquor store, variety store, fashion store or shoe store, make sure you do your homework.

We are a law firm that conducted dozens of closings for people buying or selling stores all over New York. If you are looking for a lawyer to represent you in the transaction, give us a call at (212) 233-1233.

Buyers – Perform Due Diligence and Know What You are Buying

The goals of the buyer is are to get the best possible price for the best possible business, to not buy a business with problems or that will not make a good enough profit.

When you are buying a store, you have to make sure that you know what you’re buying. You don’t want to be buying a “cat in a bag.” So you must perform what’s called “due diligence,” which is an audit that may include the following:

Financial Audit – You have to examine the financial documents of the store (income tax returns) and statements from suppliers. It may be a good idea to work with an accountant or an appraiser to appraise the store, to make sure that you are getting a fair deal.

Future Business Volume Audit – Conduct surveillance of the store to make sure it’s actually busy, and perform other research to make sure that the store is going to provide returns on your investment. Changing neighborhood trends may make a store an outdated relic, so make sure that the neighborhood will be able to sustain this type of store in the future.

Competition Audit – It’s a good idea to check what other stores are in close proximity. For example, women’s shoe stores next to each other is a good thing, while men’s shoe stores next to each other may not be so great. Also, try to check how well those stores are doing, it will give you a perspective on the store you’re thinking of buying.

Inventory – Conduct an inventory of the merchandise, check the quantity, quality and age of the merchandise. It will give you information about how fast the merchandise sells, what grade of merchandise and consequently what types of customers, and how honest the seller is about the merchandise and consequently about the entire business.

Regulatory Compliance – make sure the store complies with all local, municipal, state and federal regulations.

Environmental Study – Depending on the type of store you are buying, you may need to check the inventory, regulatory compliance, do an environmental study, and do a market analysis.

Sellers – Get Your Money and Avoid any Further Responsibility

The main goals of the seller is to get the money for the business, keep the stream of payments going if there’s seller financing involved, and avoid any future responsibility for the business.

Escrow the Funds – You do not want to legally transfer the lease and other assets to the buyer until you get the money, but the buyer would not want to give you the money until they get the assets. To facilitate this “money changing hands,” one of the attorneys involved in the transaction acts as an escrow agent. The attorney holds the money in his escrow account until both parties authorize him to release the funds.

Avoid Future Liabilities – The seller wants to make sure that they do not have any liabilities left over when they sell the business. As far as a non-compete clause, if any, the seller wants to make sure that they have a chance to have a business or job somewhere at some time, that it does not completely preclude the seller from doing anything related with their life when the business is sold.

Ensure a Stream of Payments – If you are financing a part of the deal, you want to make sure that the promissory note is correctly executed and that there is a personal guarantee. You may want to check the buyer’s credit before extending this loan to them.

Types of Stores and The Issues They Face

Depending on the type of store, there are various things that need to be set up in the contract stage before the closing, some things during the closing, and for some things you’d need the seller’s assistance for a few weeks after the closing. In some types of stores, it would make sense to agree in the contract that the seller will stay in the store for two weeks to help the buyer with the transition.

Convenience Store or a Grocery – Depending on where you are in New York (especially in New York City), you will need to arrange for licenses in operating a convenience store or a grocery, for things like the Lottery, alcohol and tobacco. Relationship with vendors may need to be transferred to the new owner. Those are all areas where the buyer will need the seller’s cooperation.

Furniture Store or Mattress Store – the inventory needs to be paid for by the seller, with the seller perhaps getting credit for some hard to sell, outdated or damaged inventory.

Liquor Store – needs a liquor license, for which the seller will need the buyer’s cooperation. An inventory will need to be done for the merchandise.

99 Cents Store/Dollar Store/Value Store – in a value store, the amount paid for the inventory may have to be guesstimated. Some merchandise may be credited if outdated.

Clothing Store, Shoe Store or Accessories Store – When buying any store relating to fashion, you have to make sure that you don’t pay for outdated and out of style inventory from last season.

Documents that Need to Be Executed

Once you’re sure that the price is correct and that buying the store makes sense, it is up to your attorney to make sure that your legal documents are in order. Your lawyer will make sure that the rights to operate the store are transferred to you, that you take over the lease or the ownership of the showroom, that a Bill of Sale is executed giving you the rights to the store, that the store name, phone numbers and website are transferred to you, and that any vendor accounts are transferred to you as well.When buying a store, it’s important to have the correct documents.

Contract – states the price for the business, the payment terms, the date of the closing, and other obligations of the buyer and seller.

Amendment to Contract – sometimes the terms of the deal change and the contract can be amended. This most commonly happens with the date of the closing which needs to be pushed back. But it can go as far as changing the price,  due to some things discovered during the inspection.

Bill of Sale is an important document that signifies that the buyer bought the business. Think of it as a deed to a house or a bill of sale to a car, except it’s a bill of sale for the goodwill, lease and inventory.

UCC-1 is a document recorded with New York State in case there’s financing on the inventory or assets of the business.

Promissory Note is used if the seller finances a part of the deal. It’s when the seller gets a stream of payments instead of a lump payment. The promissory note often includes a personal guarantee and a lien against the assets of the business.

Minutes and Declarations of the Corporations – both the corporation for the buyer and the seller need to have an official record of the sale or acquisition of the business.

Assignment and Assumption of Lease – the lease is taken over by the new owner. Sometimes the landlord needs an application from the prospective new owner, so don’t put this off until the closing.

Assignments – the store’s phone number, website, email addresses, accounts, etc. need to be assigned to the new owner.

Whether you are buying or selling a store in New York, you need to be represented by an experienced attorney to make sure that you get what you want from the transaction. You can call the Law Offices of Albert Goodwin at (212) 233-1233 and speak to a lawyer about your transaction.

When buying or selling a gas station, there are things you need to do and things you need to watch out for. As a law firm that has helped dozens of clients buy or sell a gas station all over New York, we are providing this article to share some of our experience. If you would like our law firm to actually represent you in the transaction, give us a call at (212) 233-1233 to discuss the details.

The buyer and the seller each have their own goals that they need to accomplish in the gas station sale.

What the Gas Station Buyer Wants

In buying a gas station, the buyer needs to strongly focus on his goals:

Problem-Free Operation – The buyer wants to make sure that he gets to operate the gas station without any issues.

Getting a Good Deal – the buyer wants to get the lowest possible price for the gas station from the seller, lowest possible price on all leases and the lowest possible price for the gasoline from the supplier.

Getting Value – it’s not only what you pay, but also what you get for your money. A gas station in excellent condition with a large volume of traffic is worth more than a station that is in disrepair and sits empty. Ownership of the property is worth more than taking over a lease. A gas station with a record of earning income is worth more than a new gas station or one with a mixed record of income.

What the Buyer Needs to Accomplish While the Station is in Contract

To accomplish his goals, the buyer needs to perform due diligence on the gas station. This includes a financial audit, environmental study, inspection and other things described below. As a buyer, you want to make sure you are getting the most out of your investment, so perform the following studies carefully and with the assistance of competent professionals:

• Financial Audit – Examine the gas station’s filed tax returns, books and records and statements from the gasoline suppliers to make sure that the price set in the contract is fair. If the price is not fair, it may be possible to renegotiate the contract.
• Environmental Study – a “Phase I” environmental study should be conducted by a professional. This includes a physical inspection of the gas station and a search for documents with the county, city, state and federal governments to make sure that the gas station does not have any environmental problems.
• Inspection – Perform a structural assessment of the buildings and the underground structure, including the tanks. It’s best that the tanks are double-walled, to avoid future spills and environmental-related shutdowns. Make sure the payment system is up to date and compliant with the new chip standard.
• Business Study – Perform a study on the long-term plans for traffic around the gas station. You don’t want to buy a gas station that is about to have a drop in traffic or re-routing due to a change in road layout or due to road construction projects. You’d also want to analyze the outlook for the volume of future traffic in the area.
• Mechanic Shop – If the gas station comes with an auto mechanic shop, check if the auto mechanic is an independent business or is being sold with the gas station. Look at the other aspects of the mechanic business as well, such as who is responsible for running it, is it paying rent and to whom and who is getting the income.
• Inventory – before the closing takes place, do an inventory of the merchandise in the convenience store. Make sure that they are only paying for the sellable products unless agreed otherwise with the seller. You don’t want to pay for inventory that you’ll have to throw out. Before paying for the seller’s inventory of gasoline, the buyer needs to check for the presence of water in the gasoline.
• Gas Supplier Audit – get in touch with the gas supplier and franchise and make sure that the gas station is in good standing and does not have a pending branding termination.
• Transfer Licenses and Accounts – Investigate the process or transferring licenses and accounts so that they can start operating the gas station right away. Make sure that the seller assists in transferring licenses and accounts

Components of the Gas Station Being Sold

Although a gas station is one entity, it is actually made up of several components. It is important for the buyer to pay attention to each one of those components individually:

Convenience Store – Savvy gas-station operators know that a large share of the gas station’s profit comes from the convenience store. This is because margins are low on gas sales but high on grocery items. It’s important to address the convenience store in the contract, to perform due diligence and check that the store is operating properly, and to conduct a thorough inventory.

Gas Delivery System – Perform your due diligence to make sure that the wells and the pumps are working correctly and are not in need of a costly repair.

Physical Premises – Make sure that the physical premises of the gas station are in good condition and don’t have any violations with the municipal, state or federal government.

Pumps and Tanks – Make sure you understand whether the pumps and tanks are owned by the seller and are included in the sale. If you are leasing, find out if the pumps and tanks are a part of the lease.

Set Up a New Corporation?

The buyer may want to form a new corporation and not take over the corporation of the seller. This way, there is a smaller chance of being on the hook for any of the seller’s past debts.

This should have been done before the contract was entered into. But if it was not done, it is still possible to form a new corporation and assign the contract to the new corporation.

It’s in the interest of the buyer to make sure that they avoid any responsibility for any of the seller’s prior debts. The buyer should execute the appropriate documentation to that effect.

Or Decide to Do an Asset Sale or Stock Sale?

When buying or selling a gas station, the transaction can be done as a sale of the stock of the seller’s corporation to the buyer or as a sale of assets to the gas station to the buyer. There can be serious tax consequences to not getting this right.

Seventy percent (70%) of businesses sold are asset sales. Most small businesses are sold as assets, not as stock. Usually, an asset sale would make sense in most partnerships or S-Corporation. However, ask your lawyer and accountant what works best for you.

What the Seller Wants

The seller should focus on his goal of getting paid as much as possible for the gas station with the least amount of expenses and make sure he gets out of all of the responsibility relating to the gas station once it’s no longer his.

Getting Paid – the seller needs to make sure he receives payment before or simultaneously with transferring ownership of the gas station.

End of Responsibility – The seller is either selling the lease for the gas station or the actual property which includes the land and the buildings. If the seller is selling the lease, he wants to make sure that he’s no longer responsible for the lease payments once the lease is transferred. The seller may want to look into dissolving the corporation under which it was operating as soon as that’s feasible, so as to avoid any future liability.

Keep the Promissory Note Payments Coming – If the seller is financing a part of the transaction, allowing the buyer to pay with a promissory note with a stream of payments, the seller needs to make sure that the promissory note is property made and signed and that it does not contain any conditions which will make it possible for the buyer to get out of paying the promissory note.

Although the buyer and the seller are the main parties to the gas station sale, a gas supplier is also involved, and sometimes a landlord.

What the Gasoline Supplier or Franchise Wants

A gas station’s gasoline supplier is often also the licensee of the brand. There is usually an exclusivity agreement. The buyer may or may not have to take over the responsibility for the exclusivity agreement upon buying the gas station.

In the alternative, the gas station can be a franchise that provides the branding and supplies the branded gas. Either way, the gasoline supplier wants to make sure that the operator of the gas station commits to buying gasoline exclusively from the supplier.

Either way, the company supplying the gasoline and the brand wants to make sure that the gas station is in a condition which complies with the gas station brand’s standards. If the gas station does not comply with the brand’s standards, the gas supplier wants to make sure that he gets a written commitment from the buyer to bring the gas station within compliance so that the gas station does not lose the branding.

The gas supplier may or may not impose a minimum purchase volume requirement and may provide discounts or rebates when a certain monthly purchased gas volume target is met.

What the Landlord Wants

If there is a landlord involved, they will be concerned with getting the rent paid. A landlord would want to make sure that the buyer, who will be their new tenant, is someone who is able to pay the rent. They may want to run a credit check on the potential new tenant. The landlord should also make sure that all of the past rent and other expenses are paid before the transfer takes place.

Documents that will be Signed at the Closing of the Gas Station Sale

There is a common set of documents which need to be signed at closing for buying a gas station or selling a gas station:

• The contract for Purchase of the Gas Station – The contract defines important things such as the purchase price, time for due diligence, time for closing, financing contingencies and seller-provided financing.
• Amendments to Contract – sometimes issues come up during the gas station transaction which needs to be addressed in an amendment to the contract. Amendments to the Contract usually come up as new parties or new lawyers get involved in the transaction.
• Gas Station Closing Statement – the closing statement sets forth how much the buyer is paying and how much the seller and other parties are getting paid.
• Assignment of a Gas Station Lease – if the asset being sold is a lease as opposed to the real estate, then the parties need to sign an assignment of lease, where the lease is transferred from the seller to the buyer and the transfer is approved by the landlord.
• Promissory Note – If the seller is financing a part of the sale, then he will need a promissory note from the buyer. The seller needs to make sure that the promissory note is solid enough that does not allow the buyer to get out of it.
• Mortgage on the Gas Station – If the gas supplier or someone else has a mortgage on the property, that mortgage will have to be reviewed.
• Exclusive Petroleum Agreement – There is usually an exclusive petroleum agreement or gas purchase agreement in which the operator of the gas station agrees to buy petroleum exclusively from one supplier, in exchange for a good price and the branding of the gas station. In a way, the gas supplier owns the franchise, not the gas station operator. The price of the franchise is included in the price of gas delivery.

Although those are the most important documents, more documents may be required to complete the transaction. When buying or selling a gas station, different parties have different intents and there are quite a few complex documents that need to be handled. For that reason, we recommend that a gas station closing in New York be handled by an attorney who has experience conducting gas station transactions and closings.

The information here is for general consumption and is not legal advice for your particular situation. If you would like to consult with us about buying or selling a gas station in New York, call The Law Offices of Albert Goodwin at (212) 233-1233.

When buying or selling an insurance agency, there are pitfalls to watch out for. We are a law firm that represents clients in buying or selling an insurance agency all over New York. We are going to describe how the closing process works and provide some tips on ensuring a smooth closing process and business ownership transition.

With the sale of an insurance agency, what is being sold are the existing insurance contracts and the reputation in the community. The existing insurance contracts are the most valuable asset of an insurance agency, because of the commission that the agency receives every time the customer’s contract is renewed, even if the contract is renewed automatically. The goodwill and reputation of the insurance agency in the community are also important, as it means getting more self-renewing contracts in the future.

The Closing

Closing for the sale of an insurance agency can be done remotely. Negotiations are done on the phone between the parties and their attorneys. Documents are edited accordingly by the attorneys as the negotiations advance, with the attorneys exchanging redlined versions of the documents in MS Word through email. Once the terms of the deal are agreed upon, the buyer and the seller of the insurance agency sign the documents and exchange scanned versions of the documents through email and hard copies of the documents through overnight FedEx or UPS.

The Escrow

In order to ensure that the buyer receives the customer accounts and the seller receives the money, the funds are held in an escrow by one of the attorneys while the transfer of insurance vendor accounts is taking place. The escrow attorney releases the funds to the seller once the transfer of accounts is complete and both the buyer and the seller instruct the attorney to release the escrow to the seller.

Seller-Financed Component

Many insurance agency sales involve a seller-financed component, where the seller takes a promissory note as part of the compensation of the business. For example, in the case of an $80,000 promissory note, the buyer agrees to pay the seller $1,500 per month for five years. Some promissory notes include a contingency on the non-compete agreement.

Non-Compete Agreement

Because what is being sold is the goodwill of the business, the buyer would not want the seller to take that goodwill back. This is why buyers insist that sellers sign a confidentiality agreement and a covenant not to compete. For example, it can be a non-compete agreement to not sell insurance within a twenty-mile radius of the insurance agency being sold for the next five years. The exact terms of the non-compete agreement for an insurance agency sale are negotiable between the buyer and the seller.

Assets that the Buyer is Looking to Receive

At the closing, the buyer is looking to receive the assets that are being bought:

1. A complete list of customers, including current, active, canceled or inactive customers served
2. All existing insurance contract information, including carriers and marketing representatives names and contact information
3. Producer codes
4. Agency codes
5. User names and Passwords
6. All electronic information concerning the current customers, including company name, policy number, and client contact information
7. Complete backup of all client data from the seller’s data management system

Documents that Need to be Signed

There are documents that both parties are expected to sign at the closing. Signing the documents insures a smooth transaction of the business and that both the buyer and the seller are legally protected in the transaction. Here is a list of the documents signed in a typical sale of insurance business:

• Contract – sets up the price, what assets are bought, what the due diligence period is, and when the closing date is.
• Amendment to Contract – as the parties understand the deal better, more things come up and the contract needs to be amended.
• Bill of Sale – the main document that has the effect of transferring the business. Think of it as a deed to a house. The insurance vendors will need the Bill of Sale to transfer accounts to the new operator.
• Confidentiality Agreement and Covenant Not to Compete – as the buyer is buying the right to get commissions from clients who owe their loyalty to the agency, the buyer has to make sure that there is no way for the seller to just take those clients back.
• Assignments – Assignment of Trade Names, Assignment of Telephone Numbers, Assignment of Website and Email Addresses, Assignment of Contracts and Information
• Indemnity Agreement – since the buyer is taking some risk when buying assets he doesn’t know everything about, an indemnity agreement minimizes that risk somewhat by making giving the right to the buyer to sue the seller to reimburse them for any debts that occurred prior to the sale of the insurance agency.
• Minutes and Resolutions – minutes and resolution are corporate documents that are preferred, they provide legal authority to sell and buy the assets of the insurance agency. Those include Minutes of the Buyer’s Company, Resolution of the Buyer’s Company, Minutes of the Seller’s Company, Resolution of the Seller’s Company.
• Limited Powers of Attorney – Limited Powers of Attorney make it easier for the buyer to assume the business operations of the insurance agency they’re buying. These include Limited Power of Attorney for Payment and a Limited Power of Attorney for Assignment of Policies and Contracts.
• Letter from the seller’s company regarding the transfer of business – to confirm to any vendors, customers, etc. that the business has a new owner
• Closing Statement – the closing statement explains how much the seller is paying and how much of that money is going to the buyer, the broker, the closing attorney and other parties involved.
• Allocation Agreement – a statement whether this was an asset sale or a stock sale may be needed for tax purposes.
• Promissory Note – if a part of the deal is seller-financed, then the seller needs a promissory note from the buyer which sets forth the total amount financed, the number of payments and the amount of the monthly payments.
• Security Agreement – guarantees that the promissory note is secured by the assets of the insurance agency business
• Personal Guaranty – guarantees that the buyer is personally responsible for the promissory note even though the note is payable by the buyer’s corporation
• UCC-1 Financing Statement – has to be filed with New York State to insure that other people lending money to the buyer know of the seller’s promissory note interest
• Memorandum regarding fees – included if one of the attorneys is a closing agent
• Certification – the seller certifies that no changes took place since the contract was signed
• Assignment and Assumption of Lease – if the lease is one of the assets to be sold, the lease is assigned from seller to buyer, with the landlord’s consent
• Letter of Authorization – authorization to import consumer data to the buyer’s database
• Subordination Agreement – if the buyer is using a bank to finance the deal, the bank would typically wish to subordinate the seller-financed loan to their own loan

Once the closing is done and the buyer assumes the operation of the insurance agency, the seller typically sticks around for a few days to show the new operator the ropes and to make sure that the new owner correctly provides services to the customers. The new owner then assumes the operation of the insurance agency.

This article is meant for general information only, not as advice on a specific transaction. If you are looking to buy or sell an insurance agency in the state of New York, call the Law Offices of Albert Goodwin at (212) 233-1233.