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In theory, buying or selling a web design firm can seem pretty straightforward. However, there are various legal considerations that need to be taken care of before the purchase can be finalized.
Buyers and sellers have different responsibilities when it comes to transferring ownership of the business. While buyers will need to conduct comprehensive due diligence and sign agreements (like NDAs), sellers are responsible for providing contracts, transferring intellectual property rights, and ensuring compliance with regulations.
In this post, we’ll discuss 10 legal considerations when buying or selling a web design agency. Then, we’ll show you how to sell your web design company. Let’s get started!
Legal aspects to consider during the transaction process
Although this list isn’t exhaustive (and legal considerations can differ on a case-by-case basis), here are ten of the most important aspects to consider when buying or selling a business.
1. Due diligence
If you’re buying a web design firm, it’s important to investigate and verify the information that the seller has provided about the agency. This process is known as due diligence.
We’ll detail many of the individual points throughout this article, but generally, due diligence involves assessing financial statements, employment agreements, leases, contracts, and other key documents. The purpose is to uncover any hidden liabilities or financial/legal issues and confirm the value of assets.
As a buyer, this will enable you to make an informed decision about whether to proceed with the transaction, or whether to adjust the sale price. You may even want to carry out operational due diligence (to evaluate efficiency) and market due diligence (to understand growth opportunities and risks).
2. Purchase agreement
When buying or selling a web design firm, you’ll eventually require a purchase agreement. This is a legally-binding document that outlines the terms and conditions of the sale like the agreed price and payment method.
There are different ways to structure the transaction of a business. An asset purchase allows the buyer to determine which assets and liabilities they will assume. In this instance, the sale centers around an asset purchase agreement.
On the other hand, buyers who are acquiring shares (or stocks) of a web design firm will use a different type of purchase agreement. In this instance, the seller usually won’t pay as much tax. That said, buyers may need to carry out more comprehensive due diligence as they can assume unwanted liabilities.
Besides covering the terms of the transaction, you may wish to include details that protect both the buyer’s and seller’s interests. This might mean coming to agreements about warranties, representations, indemnification, or dispute resolution strategies.
3. Contracts
When selling or buying web design firms, there are various contracts that require your attention. In particular, it makes sense for buyers to review existing contracts with employees, clients, and suppliers.
However, sellers may need to obtain consent from clients first to transfer contracts to the buyer. During this process, buyers should look out for any restrictive covenants (like competition agreements) that can impact the ability to retain or recruit staff after purchasing the business. If you’re undertaking an asset sale, buyers may need to honor existing contracts with employees and clients.
Therefore, you’ll have to assess all the terms and conditions outlined in these documents (including salaries, working hours, benefits, etc). If you wish to make changes to existing terms, or you anticipate redundancies, this ought to be discussed (and representations may need to be made).
4. Intellectual property protection
Intellectual property (IP) refers to any product (like software or technology) that has been developed within the web design firm. It’s a huge asset to a company and can be one of the things that buyers look for in a web design agency.
Therefore, it’s important to make sure that the IP rights are properly protected. As the seller, you’ll need to register trademarks, copyrights, or patents to protect your product (if you haven’t already done so). You should also make sure that the business has the licenses it needs to use third-party intellectual property.
The transfer of IP rights should be outlined in the agreement between the buyer and the seller. It should address the assignment of rights, licenses to third parties, and ongoing royalties. However, sellers may also need to review agreements with employees/freelancers to spot possible issues associated with IP ownership.
As a buyer, intellectual property also requires thorough due diligence. For example, you ought to check registration records for patents/trademarks, identify potential infringements, and review contracts or agreements related to IP. Additionally, you may need to consider any IP assets that are not registered (like trade secrets).
5. Regulatory compliance
When buying or selling a web design firm, you’ll need to ensure that the purchase complies with relevant laws and regulations. Typically, this means complying with tax requirements and environmental regulations.
The latter is usually only relevant if you have a physical brick-and-mortar space dedicated to your business. In some instances, there may be strict rules about waste disposal or the use of hazardous materials (where non-compliance will usually result in fines or legal action).
If you’re buying a web design agency, it’s up to you to ascertain potential environmental liabilities. That’s why it’s a good idea to consult an experienced lawyer to review documents, and carry out property searches/inspections.
Tax compliance is also necessary to ensure that the transition goes ahead smoothly. The seller is responsible for resolving outstanding tax liabilities, providing financial statements, and filing accurate tax returns.
On the other hand, buyers should verify the tax compliance status of the owner. This might mean reviewing tax filings, investigating pending tax disputes, and identifying any tax implications that may arise from the sale.
6. Confidentiality and non-disclosure agreements
As you can imagine, selling a web design firm is a complex process that requires sellers to share sensitive information with buyers. Confidentiality is therefore crucial to help you protect your business reputation, negotiate from a position of strength, and reduce anxiety among employees/clients.
That’s why it’s recommended that you sign non-disclosure agreements with potential buyers. This will ensure that details regarding the transaction will not extend to outside parties. Sensitive records and statements should not be provided to buyers who haven’t signed an NDA.
7. Non-compete clauses
There are some situations where buyers will issue non-compete clauses to restrict sellers from starting similar firms.
These agreements usually prevent sellers from starting a business within a specified period of time or within the same geographic area. Typically, these provisions are drawn up to protect the buyer’s investment and provide a guarantee that the seller won’t steal clients away once the sale is complete.
8. Non-solicitation agreements
Buyers may also wish to draw up non-solicitation agreements to prevent sellers from soliciting employees or clients. This provides total peace of mind that key stakeholders will remain with the business, even once it’s changed hands.
That said, it’s important to review these contracts carefully, since these provisions can significantly impact the buyer’s ability to grow the web design agency.
9. Outstanding debts and charges
If you’re acquiring a web design firm, you’ll need to have a solid grasp of the company’s financial standing. You’ll want to know about any outstanding debts or charges that might impact the transaction.
In an asset purchase, the buyer may not be responsible for any liabilities. However, if you’re purchasing shares/stocks of the business, you may incur all debts and charges associated with the company.
Charges are particularly problematic since creditors have the legal right to seize and sell the firm’s assets to settle the debt. Therefore, you’ll certainly need to address these matters and perhaps speak to an experienced legal professional for guidance.
10. Post-sale matters
Even when the purchase is complete, there are certain matters and obligations that may need your attention to prevent post-closing disputes.
Naturally, both sellers and buyers have to adhere to all legal agreements made throughout the process. The seller has to make sure all claims made about the business are true. This extends to the financial health of the company, legal compliance, asset condition, and more.
If these claims prove not to be true, the buyer may seek compensation or post-closing adjustments might be made on the purchase price (based on metrics like net asset value/working capital). The buyer also has the option to indemnify the seller to protect themselves against any liabilities that arise after the sale.
How to sell your web design firm
When it comes to selling your web design company, you have various options. If you have industry contacts you could leverage, you might like to try and sell the business yourself.
Alternatively, online marketplaces allow you to list your business for sale. But there’s a lot of competition, so if you run a general-purpose agency, it can be difficult to make your offer stand out. Auctions can also be a good option, but you might not sell your firm for as much as you’d like.
However, none of these methods guarantee a smooth transition for your clients and employees. That’s why you might prefer to sell your business to Freshy:
With over 15 years of experience, Freshy has a large team of WordPress experts that span across multiple disciplines. This includes ecommerce development, WordPress design, search engine optimization (SEO), ongoing maintenance, and much more.
It’s a full-service agency with a long history of successful acquisitions and mergers with other web design firms. The best news is that Freshy is open to all types of businesses, regardless of your profits, market, client base, and niche.
With a dedicated in-house support team, Freshy efficiently onboards all of your clients, who will also receive personalized care and support. This provides peace of mind that your long-lasting client relationships will be well maintained even after the sale is complete.
If you wish to review the standard of Freshy’s work, there’s an extensive portfolio available on the website. And, it’s super easy to kickstart discussions. Simply fill out this quick form and a member of the leadership team will immediately get in touch.
Conclusion
Buying or selling a web design firm can be an exciting time. However, it’s also a very complicated procedure, involving several legal aspects to ensure a smooth transition for all parties.
To recap, here are ten legals aspects of buying and sell web design agencies:
- Due diligence
- Purchase agreements
- Contracts
- Intellectual property protection
- Regulatory compliance
- Confidentiality and non-disclosure agreements
- Non-compete clauses
- Non-solicitation agreements
- Outstanding debts and charges
- Post-sale matters
Freshy has a strong track record of web design mergers and acquisitions. You’ll hand your firm over to an experienced team, and we promise fast, responsive communication to ensure an efficient process. We also provide tailored care and support to help your clients transition smoothly. Fill out this simple form to get started!
Featured image credit: Pexels.