SMB M&A - Litigation and Disputes: Navigating the Legal Terrain

You're about to buy a business, and it's like stepping onto a new land. But before you plant your flag, you must check the legal terrain. Litigation and disputes are like hidden traps in the landscape. Here's why you need to tread carefully:

1.     Litigation History: Imagine buying a house without knowing its repair history. Similarly, businesses can have a history of legal battles. Check if the company has been involved in lawsuits. It's like looking at the business's legal record.

2.     Pending Disputes: It's like checking if there's a storm on the horizon before setting sail. Are there any ongoing disputes or legal battles? Unresolved issues could become your problems after the acquisition.

3.     Financial Impact: Lawsuits can be like financial storms. They can drain resources and impact the business's financial health. Assess the potential economic impact of any ongoing litigation on the company's stability.

4.     Compliance with Judgments: You'd check if someone pays their bills before buying a house. Likewise, ensure the business complies with court judgments. Outstanding judgments can be a red flag, affecting the company's credibility.

Why Should You Care?

Imagine buying a car without knowing it has outstanding traffic tickets or a history of accidents. Litigation and disputes are the dents and scratches in a business's legal history. Here's why they matter:

Financial Protection:

Legal battles can be expensive. Knowing the business's litigation history helps you prepare financially. It's like having insurance against unforeseen legal costs.

Negotiation Leverage:

Understanding the legal landscape gives you bargaining power. If there are ongoing disputes, you can negotiate better terms or factor potential costs into the deal.

Business Continuity:

Like checking if a house is built on a solid foundation, assessing litigation history ensures the business is stable. It helps you avoid inheriting legal troubles that could disrupt operations.

Reputation Management:

Legal troubles can tarnish a business's reputation. It's like checking the online reviews before making a purchase. Understanding the litigation history helps protect the brand image.

In essence, litigation and disputes are the legal weather reports for a business. Taking the time to understand this aspect ensures a smoother journey into ownership. It helps you navigate potential legal storms and ensures that you're planting your flag on stable ground.

*Disclaimer: this article is for informational purposes only. It is not providing legal advice. It does not create an attorney-client relationship.