We are often asked, “what do I need to know about buying a restaurant in Maryland?” While each prospective purchase is driven by the unique facts of the situation and there are no two restaurants, bars or taverns that are alike, each has as its key asset an alcoholic beverage license. This blog post is a “Top 10” list of issues to consider (.. okay 10 plus 2 extra issues):
- What are you buying? Is this a purchase of the stock in the business entity owned by the principals or a purchase of the assets of the business? There are justifications for each option, but on balance, an asset purchase is likely more advantageous for a buyer.
- Does the sale include the building where the restaurant is located or is the space leased and, if so, is that lease assignable by the seller (with or without landlord consent)? Most restaurants in Maryland are in leased spaces.
- Is a covenant not to compete by the seller and its principals for some number of years part of the deal?
- What is the agreed purchase price? How much is the deposit, the amount to be paid at closing on the transaction, is there any seller financing, and the like?
- How is the purchase price allocated for income tax purposes? How will transfer and recordation taxes be shared and are there other taxes due for the business and on this transaction?
- What representations and warranties is the seller making about the business, including about what business assets exist, the financial condition of the business, etc.? Or is this an “as is” transaction?
- What type of due diligence will be undertaken by the buyer, including how long a study period will be provided, before the deposit becomes nonrefundable?
- Among the most important issues (because of the large dollars that alcohol sales contribute to a restaurant) is the contemplated transaction contingent upon transfer of the alcoholic beverage license, including possibly allowing for the running of any appeal time.
- Will each party comply and cooperate with the other party to assure compliance with bulk sales laws, including notices to all creditors.
- What is the closing date on the contemplated transaction?
- Will the business will continue to be operated in the ordinary course pending closing?
- Is there a broker to be compensated?
This Top 10 plus 2 list of issues to be considered is really just the starting point. Some are easily dealt with between the parties and others, like the transfer of the alcoholic beverage license, which is key in the value of the business, require an application, public hearing and approval by a board of liquor license commissioners.
And not just because you are reading a blog written by attorneys, but given that large dollar amounts involved, the complexity of the transaction and potential liabilities involved, the purchaser of a restaurant or other alcoholic beverage business in Maryland should be represented by legal counsel. We do that work and would be pleased to speak with you.