Acceleration Clause – A clause used in a note and/or security agreement which gives the lender the right to demand payment in full if a certain event occurs such as default or if the ownership of the business changes without the lender’s consent; sometimes referred to as a “due on sale” clause.
ACCEPTANCE – The act of accepting an offer which results in a binding contract.
ADDENDUM – A written instrument that adds something to a written contract.
ADJUSTED BOOK VALUE – The Book Value of a company refers to equity. After adjusting the value of assets and liabilities to reflect estimated market values rather than depreciated tax values and removing non-operating assets and liabilities from the balance sheet, we arrive at Adjusted Book Value.
ADJUSTED EARNINGS – Adjusted Earnings refers to earnings of a company after adjusting for one-time or extraordinary expenses, excess owner compensation, discretionary expenses, and other expenses that are not essential for the successful ongoing operation of the business.
AGENCY LISTING – Also known as an “Exclusive Agency Listing” – A written instrument giving the agent the right to sell property for a specified time. However, the owner may sell the property himself/herself to a buyer who was not introduced to the business by the agent without the payment of a commission to the agent.
AGENT – One acting under authority of a principal to do the principal’s business. The agent must use his or her best efforts and keep the principal fully informed of all material facts.
ALLOCATION – A breakdown of the purchase price usually required when a business is sold. For example, the allocation might contain a breakdown of the inventories, fixtures and equipment, leasehold improvements, goodwill, and any other purchased assets. Generally, value is placed on each component of the allocation and the buyer and seller agree on this breakdown. The IRS requires that such an allocation be a part of the buyer’s and seller’s tax return when a sale takes place; Form 8594, the “Asset Acquisition Statement”, must be filed with the buyer’s and seller’s tax return for the year in which an applicable asset acquisition takes place.
AMENDMENT – A written instrument that changes something previously agreed to. (This is different than an addendum).
AMORTIZATION – 1. A reduction in a debt obligation by periodic payments covering interest, and part of the principal. 2. The writing off or expensing of the cost of intangible assets over a period of time, usually in years. Amortization of intangible assets vs. depreciation of tangible assets- Intangible assets purchased, such as goodwill and covenants-not-to-compete can be written off over 15 years.
APA – Asset purchase agreement.
APPRECIATION – A gain in value due to any cause. Real estate is an asset that often appreciates in value over time.
ARBITRATION – The submission of a disputed matter for resolution outside the normal judicial system. It is often speedier and less costly than courtroom procedures. An arbitration award can be enforced legally in court. If one or more parties cannot agree on a single arbitrator, they can select arbitrators under the rules of the American Arbitration Association (AAA). Arbitration clauses are often inserted into contracts as the forum to settle disputes arising out of the contract.
ASKING PRICE – The total amount for which a business or an ownership interest is offered for sale.
ASSET APPROACH – The Asset Approach is one of 3 common approaches (along with Income Approach and Market Approach) used to value a business and estimate the value of business ownership interest. This approach uses one or more Valuation Methods based on the Adjusted Book Value of the company.
ASSET APPROACH – The Asset Approach is one of 3 common approaches (along with Income Approach and Market Approach) used to value a business and estimate the value of business ownership interest. This approach uses one or more Valuation Methods based on the Adjusted Book Value of the company.
ASSET SALE – An Asset Sale is a form of acquisition whereby a selling entity transfers ownership of tangible and intangible assets to another owner without transferring the ownership structure or the corporate entity. However, Asset Sale can also refer to the sale of a business enterprise at a price based solely upon the value of the tangible assets.
ASSIGNMENT – A transfer in writing of an interest in property or other things of value from one person or entity to another.
ATTORNEY-IN-FACT – One who is appointed, in writing, to perform a specific act for and in place of another, e.g. signing documents for someone in their absence.
BASE RENT – The minimum rent in a lease which sometimes contains a percentage or provisions for additional rent.
BASE YEAR – The Base Year is the company’s current fiscal year. Sales and income are projected based on the expectations of management when complete financial statements are not available for the current year.
BASKET – The dollar amount set forth as the minimum loss that must be suffered by the buyer before the buyer can recover damages under the indemnification provisions. Deductible Basket: Seller is only responsible for damages exceeding the basket amount (e.g., under a deductible basket of $100, if a claim of $150 is made then the seller must pay $50). Dollar-One Basket (Tipping Basket): Seller is responsible for all damages once damages reach the threshold basket amount (e.g., under a dollar-one basket of $100, if a claim of $150 is made then the seller must pay $150).
BILL OF SALE – A written agreement by which one person assigns or transfers his or her rights to or interest in goods and personal property to another.
BLUE-SKY – Blue Sky refers to any intangible portion of a price, above the maximum Good will, that cannot be reasonably supported through the application of established Valuation Methods and which generates no economic benefit.
BOND – A pledge to pay a sum of money in the event of failure to fulfill obligations; e.g. inflicting damage, or mishandling funds - Usually written by a company for a fee. Also known as a Surety Bond.
BOOK VALUE – Book Value is the value of an asset, net of depreciation, at which the asset appears on a company’s balance sheet.
BREACH OF CONTRACT – Failure of a party to a contract to perform any or all of his obligations under the contract. There are four types of breaches.
BROKER – A Business Broker is a Wisconsin Real Estate Licensee. A Business Broker is an intermediary serving clients and customers who desire to sell or acquire businesses. A Business Broker is committed to providing professional services in a knowledgeable, ethical and timely fashion. Typically, a Business Broker provides information and business advice to sellers and buyers, maintains communications between the parties and coordinates the negotiations and closing processes to complete desired transfers of ownership interest.
BULK SALE – A transfer in bulk of all or substantially all of the inventory and fixtures of a business, which is not in the ordinary course of business.
BULK SALES ACT – Laws enacted by the states to protect creditors against secret sales of all or substantially all of a business’s goods. It requires certain notices prior to the sale and sets forth ways of voiding the sale (see Uniform Commercial Code). NOTE: No longer required in New Mexico since 7-1-92; however, each state has its own Bulk Sales laws.
BUSINESS BROKER – A Business Broker is an intermediary dedicated to serving clients and customers who desire to sell or acquire businesses. A Business Broker is committed to providing professional services in a knowledgeable, ethical and timely fashion. Typically, a Business Broker provides information and business advice to sellers and buyers, maintains communications between the parties and coordinates the negotiations and closing processes to complete desired transactions.
BUSINESS INTERMEDIARY – A Real Estate Licensee who acts as an agent representing buyers and sellers in the sale or acquisition of a business.
BUSINESS TRADE NAME – Company name by which a certain business is known.
CO-BROKERAGE – An agreement between two or more Business Brokers for sharing services, responsibility, and compensation on behalf of the client.
CO-BUSINESS BROKER – A Business Broker who shares services, responsibility, and compensation on behalf of a client.
CO-MINGLING – When an agent mixes the funds of a buyer or seller with his/her own in a “trust account”. This is against the law in most areas and in most states. Licensed brokers may lose their license because of co-mingling.
COE – Close of escrow.
COLLAR – The ceiling and floor of the price fluctuation on an underlying asset. For example, the price fluctuation where stock is part of the consideration; or, the fluctuation in the amount of trued-up working capital compared to estimated working capital.
CONDITIONAL SALES CONTRACT – This is different than a chattel mortgage. Title to the goods, fixtures, and equipment or the business itself is not transferred to the buyer, and remains with the seller, until the terms of the contract have been met. This generally means when all the payments have been made.
CONDITIONS TO CLOSING – Certain obligations must be fulfilled to legally require the other party to close the transaction. Other than conditions to closing relating to corporate approvals and governmental filings and approvals, compliance with a particular condition to closing may be waived by the party that benefits from the condition.
CONSIDERATION – Something of value which induces a person to enter into a contract. The promise to do something must be in exchange for some act or thing of value which is the consideration. This is a necessary element in a contract.
CONTINGENCY – A clause in an agreement, contract, escrow, etc., that only makes it binding upon the occurrence of a stated event. For example, the sale of the business is contingent upon the buyer obtaining financing.
CONTRACT – A voluntary and lawful agreement between two or more parties to do, or not to do, something. Elements of an enforceable contract include: (a) an offer to be bound to do or refrain from doing something, which has been accepted, (b) sufficient consideration, (c) a valid subject matter, (d) legal capacity of the parties and (e) for those contracts to which the Statute of Fraud applies, its requirements must be met.
CONVEYANCE – A transfer of title.
COOPERATING BUSINESS BROKERS – Business Brokers who share their knowledge, expertise, and skills for the benefit of the business brokerage profession, clients, customers, and the public good.
COP – Change of possession.
CORPORATION – An entity created by or under the authority of the laws of a state, composed of individuals united under a common name, and which for certain legal purposes is considered a natural person. Characteristics of a corporation include: (a) continuity of life, (b) centralization of management, (c) limited liability, and (d) free transferability of interest.
COVENANT-NOT-TO-COMPETE – An agreement made part of a purchase contract, in which the seller promises not to enter into a similar or competing business, for a specified period of time, within a designated area.
COVENANTS – Negative covenants restrict the seller from taking certain actions prior to the closing without the buyer’s prior consent. Negative covenants protect the buyer from the seller taking actions prior to the closing that change the business that the buyer expects to buy at the closing. Affirmative covenants obligate the seller or the buyer to take certain actions prior to the closing.
CREDITOR – A person to whom a debt is owed by another person who is called the debtor.
CUSTOMER – A person to whom a debt is owed by another person who is called the debtor.
DBA – “doing business as” - an identification of the trade name of the business, which may differ from the legal corporate name. Also known as a "fictitious name."
DEAL STRUCTURE – Deal Structure can take many forms. It refers to the combination of types of payment by which the acquisition of a business is accomplished. Deal Structure can include cash, promissory notes, stock, consulting agreements, earn-out provisions, and covenants not to compete. The sale of a business itself can take the form of an Asset Sale or a Stock Sale.
DEMAND NOTE – A promissory note that has no set time period for repayment and can be called due by the holder at any time.
DIRECTORS – Those who are elected by the stockholders to manage the affairs of a corporation. Shareholders elect directors; directors elect officers; officers manage the day-to-day affairs of a corporation.
DISCHARGE OF THE ORIGINAL CONTRACT – The following 16 events would lead to the discharge of the original contract.
DISCLAIMER – A statement that attempts to limit liability in the event information is inaccurate.
DISCOUNT RATE – The Discount Rate is a rate of return used to calculate the present value of multiple periods (usually years) of payments.
DISCRETIONARY EARNINGS – "The earnings of a business enterprise prior to the following items:
- Income taxes
- Non-operating income and expenses
- Nonrecurring income and expenses
- Depreciation and amortization
- Interest expense or income
- Owner’s total compensation for those services which could be provided by a sole owner/manager."
DURESS – Unlawful constraint exercised upon a person whereby he/she is forced to do some act against his will.
EARN-OUTS – An agreement in the sale of a company where the buyer agrees to pay the seller consideration in the future (typically cash or stock) based upon certain future events or performance of the business post-close. Because earn-out payments are contingent on the future performance of the acquired company, they are not included in the purchase price.
EARNEST MONEY – A sum of money given to bind an agreement or an offer. It is usually refundable, but might be non-refundable or partially refundable.
ECONOMIC LIFE – The “profitable” life of fixtures and equipment or any improvement; this life could be greater or less than the depreciable life for income tax purposes.
ESCALATION CLAUSE – A clause, generally in a lease, that provides for an increase in the rent at a specified time.
ESCROW – A deed, a bond, money or other piece of property delivered to a third person to be delivered by him/her to the grantee only upon the fulfillment of a condition. A portion of the consideration that is deposited with a neutral third party (in the case of an escrow) or withheld by the buyer (in the case of a holdback) to be applied toward future indemnification claims by the buyer. After a specified period of time, any consideration remaining in the escrow or holdback account is released to the seller.
ESCROW PERIOD – The length of time (in months) after the closing date that the escrow is held before being released to the seller.
EXCLUSIVE RIGHT TO SELL LISTING – When a business owner gives one Broker or Agent the authority to sell his/her business. The Broker or Agent receives commission no matter who sells the business - even if the seller finds the buyer during the listing period. (See Agency Listing).
EXECUTE – To complete, to make, to perform, to do, to follow through; to execute a contract; to make a contract: especially signing, sealing, and delivery.
EXCLUSIVE LISTING WITH A CRAVE OUT OR PARTIAL CARVE OUT – The business broker has the sole right to represent the Seller in the sale of the business. However, if the Seller sells the business to one, or more, named Buyer Prospects, the Business Broker receives: - No commission if that buyer prospect was fully carved out. - Partial commission if that that buyer was partially carved out; that is the broker assists the Seller and Buyer to complete the transaction, but the fee is reduced or a fixed fee is stipulated in the listing agreement. This listing is taken when the Seller is convinced that a specific person will buy their business and won't list because of that. Most of the time the person who was carved out doesn't buy the business. The business Broker should try to limit the time that Buyer is excluded (e.g. 30 days).
INSTRUMENT – A written legal document, created to affect the rights of the parties.
INTANGIBLE ASSET – That which has no physical existence but represents value, such as goodwill, going concern value, business trade name. (See Blue-Sky)
INTRINSIC VALUE – Intrinsic Value refers to an analytical judgment of value based on the perceived characteristics inherent in the investment as distinguished from the current market price.
INVESTMENT VALUE – Investment Value refers to the value to a particular investor based on individual investment requirements and expectations.
IOI – IOI - Indication of interest (letter from Buyer Prospect)
IRREVOCABLE – Incapable of being recalled or canceled; unchangeable.
JOINT TENANCY – Same as Tenancy in Common, but if one party dies, his or her title passes to the other surviving joint tenant(s), and not to the heirs of the decedent.
JOINT VENTURE – A business arrangement between two or more persons. Similar to a partnership except that it exists to undertake a single project.
LEASE – A written legal document in which possession of a property is given by the owner (lessor) to second party (lessee) for a specified time and for a specified rent, and setting forth the conditions upon which the lessee may use and/or occupy the property.
LEASE WITH OPTION TO PURCHASE – A lease in which the lessee has the right to purchase the property for a stipulated price at or within a stipulated time.
LEASEHOLD – A property held under tenure of lease; a property consisting of the right of use and occupancy by virtue of a lease agreement; the lessee’s (tenant’s) interest in a lease.
LEASEHOLD IMPROVEMENTS – Any article or fixture that is attached to land or buildings.
LEGAL DESCRIPTION – The legal identification of real property.
LEGAL OBJECT – The legal identification of real property.
LESSEE – A tenant; one who has a right to occupy the premises by virtue of a lease.
LESSOR – A landlord; one who grants a right to the Lessee to occupy the premises by virtue of a lease.
LESSOR – A landlord; one who grants a right to the Lessee to occupy the premises by virtue of a lease.
LETTER OF INTENT – A description of the key points in a potential acquisition of a business, drafted to see if the parties are in general agreement on key issues before proceeding further in negotiations, and is generally designed not to be legally binding on either party. Sometimes buyers or sellers will use a more informal Memorandum of Understanding to identify the key points of a potential business purchase.
LIEN – A claim or charge upon real or personal property for the satisfaction of some debt or duty which can arise either by agreement or by operation of law.
LIMITED PARTNERSHIP – A partnership composed of some partners whose contributions and liabilities are limited. A limited partnership requires at least one general partner and one limited partner. The general partner(s) are responsible for the management and liability for its debts. A limited partner has no right in management and his/her liability is limited to amount of investment.
LIQUIDATION OR LIQUIDATING VALUE – Liquidating Value is the estimated value, net of liabilities, of a company based on the market value of its assets.
LOI – Letter of Interest from a Buyer prospect.
MARKET BASED APPROACH – A Market Approach is a general way of determining a value indication of a business, business ownership interest, security or intangible asset by using one or more methods that compare the subject to similar businesses, business ownership interests, securities or intangible assets that have been sold. The Asset Approach and Income Approach are also commonly used methods.
MERGER – Any combination that forms one company from two or more previously existing companies.
MERGERS AND ACQUISITIONS (M&A) – A term that is commonly used for the mergers, acquisitions and the selling of companies. M&A is a commonly used abbreviation for this term.
MISREPRESENTATION – A statement contrary to fact. If the statement or action is made with intent to deceive, it may be deemed to be fraudulent.
MORTGAGE – A written instrument recognized by law by which real property is pledged to secure a debt or obligation; a lien on real property.
MOST PROFITABLE SELLING PRICE – A term that is commonly used to describe the value, or range of values, that the broker believes that the business will bring in the current market. This is different from the terms “Evaluation,” “Valuation,” and “Appraisal,” which connote a much broader scope of work performed by competent professionals than that work prepared by a business broker. MPSP is a commonly used abbreviation for this term.
MOST PROFITABLE SELLING PRICE – A term that is commonly used to describe the value, or range of values, that the broker believes that the business will bring in the current market. This is different from the terms “Evaluation,” “Valuation,” and “Appraisal,” which connote a much broader scope of work performed by competent professionals than that work prepared by a business broker. MPSP is a commonly used abbreviation for this term.
NEGLIGENCE – Failure to act like a reasonably prudent person to protect the interest or safety of others.
NEGOTIABLE – Capable of being negotiated; assignable or transferable in the ordinary course of business.
NET BOOK VALUE – Net Book Value is the difference between total assets (net of depreciation, depletion and amortization) and total liabilities as they appear on the balance sheet (synonymous with Shareholder’s Equity) With respect to a business enterprise. With respect to a specific asset, Net Book Value is the capitalized cost less accumulated amortization or depreciation as it appears on the books of account of the business enterprise.
NET LISTING – A price which must be expressly agreed upon, below which the owner (principal) will not sell the property and at which price the agent will not receive a commission; the agent receives the excess over and above the net listing as his/her commission. This type of commission is unlawful in some states. It is legal in Nevada.
NON-OPERATING / NON-CONTRIBUTING ASSET – An asset unnecessary to the operation of a business enterprise and the generation of its revenues.
NOTE – Key points that buyers and sellers want to come to a general agreement on often include: stock or asset purchase, purchase price, down payment, seller financing terms, liabilities assumed, covenant-not-to-compete terms, consulting/employment agreement terms and real estate lease terms.
OFFSET (SET-OFF) – A deduction by one against a claim of another; e.g. unknown claims against the assets purchased by a buyer may be “offset” against the obligation the buyer owes to the seller (seller financing).
OPEN LISTING – A listing which is non-exclusive; may be given to any number of agencies without obligation to compensate any of them except the one who first secures a Buyer ready, willing and able to meet the terms of the listing, or who secures the acceptance by the Seller of a satisfactory offer.
OPTION – A written agreement granting to a party the exclusive right, during a stated period of time, to buy or obtain control of property or assets on specified terms, but without any obligation of such party actually to exercise such option.
OWNER – A generic term used in business brokerage to represent the proprietor, general partner or controlling shareholder (singular or plural as appropriate) of a business enterprise.
OWNER’S SALARY – The salary or wages paid to the owner, including related payroll burden.
OWNER’S TOTAL COMPENSATION – Total of an owner’s salary and perquisites, after the compensation of all other owners has been adjusted to market value.
PARTNERSHIP – A business relationship between two or more persons who join together to contribute to the capital and/or operations of an enterprise, and share the profits and losses (also, see Limited Partnership). Partnerships must lack two or more of the four corporate characteristics (see Corporations) to be taxed as such.
PERQUISITES – Expenses incurred at the discretion of the owner which are unnecessary to the continued operation of the business.
PERSONAL PROPERTY – Any property which is not real property; that which is not permanently affixed to the land.
POCKET LISTING – Anyone can sell the business. There is no written agreement. The business broker should not advertise the business is for sale because they do not have written authorization to do so. The business broker runs a big risk of not being able to prove that they didn't "damage" the business if work gets out that it is for sale, and the breach in confidentiality is traced to the business broker. Also, good luck getting paid.
POINTS – In the language of the loan business, a point is one percent of the amount of the loan.
POST CLOSING WORKING CAPITAL ADJUSTMENT – In a merger and acquisition transaction, a working capital adjustment typically represents a pre-determined amount of working capital the selling company must have on the books as of the closing date. If the actual amount is more than the pre-determined target amount, the purchase price is increased by the excess. If it is less, the purchase price is decreased.
POWER OF ATTORNEY – An instrument authorizing a person to act as the agent of the person granting it. A general power of attorney authorized the agent to act generally on behalf of his/her principal; a special power of attorney limits the agent to a specific or particular act.
NON-OPERATING / NON-CONTRIBUTING ASSET – An asset unnecessary to the operation of a business enterprise and the generation of its revenues.
PROMISSORY NOTE – A signed written instrument which acknowledges a debt with the promise to pay the debt on specified terms, (i.e. payment amount, payment date(s), interest rate).
PRORATION – The division of money obligations according to some formula. In a business closing, a seller may have paid for certain benefits into the future which are assumed by the buyer. The costs of these benefits are “prorated” between the seller and the buyer as part of the closing statement (e.g. prepaid rent, prepaid advertising, security deposits).
PURCHASE AGREEMENT – The agreement setting out the terms for the purchase of a business. A purchase agreement is the “road map” followed by the buyer and the seller in a business transaction. It would include items such as a description of what is being purchased, the down payment and repayment terms, buyer and seller representations, warranties, and indemnifications, and so on.
RECASTING – Financial Recasting is a method that eliminates, from the historical financial presentation, items such as excessive and discretionary expenses and nonrecurring revenues and expenses from financial statements, since these items reflect the financing decisions of the current owner and may not represent financing preferences of a new owner. Recasting provides an economic view of the company and allows meaningful comparisons with other investment opportunities.
REFERREE – A Business Broker who receives introductory information which leads to a client relationship.
REFERRING BUSINESS BROKER – A Business Broker who provides introductory information which leads to a client relationship.
REFERROR – A Business Broker who provides introductory information which leads to a client relationship.
RELEASE – The relinquishment of some right or benefit by a person or entity who already has some interest or right therein.
REPRESENTATIONS AND WARRANTIES – Specific assurances in a purchase and sale agreement stating that certain statements are true. The purchase and sale agreement also includes specific remedies should assurances made turn out to be false or inaccurate.
RESIDUAL VALUE – Residual Value refers to the estimated market value of an asset at the end of the period being considered.
RETURN ON INVESTMENT (ROI) – Return on Investment describes the rate of return at which the sum of the discounted future earnings plus the discounted future Residual Value equals the initial cash outlay.
ROLLOVER – The amount of equity retained by the selling shareholder(s) and is measured as a percentage of total equity of the new company and the dollar value of equity retained.
S CORPORATION – A small business corporation which is treated differently than a C Corporation for income tax purposes. Normally, it can be used by a corporation with 75 or fewer domestic shareholders when the corporation has only one class of stock. Individuals, another S Corporation, estates, certain trusts, certain financial institutions and tax exempt organizations may own shares in an S Corporation. An S Corporation may own 100% of a C Corporation. If all the statutory requirements are met, the shareholders can elect to have most of the corporation’s income and deductions flow through to the shareholders in a manner similar to the taxation of a partnership.
SECURITY AGREEMENT – The agreement given by a debtor to a creditor giving the creditor a resource to look to in case the debtor fails to pay the principal obligation.
SELLER NOTE – A note payable or loan to the shareholder(s) or owner(s) of a business provided in the sale or transition of a company by the buyer. Seller financing is typically used to bridge a valuation gap either where other forms of financing are not available or where a buyer desires to preserve the borrowing ability of the selling company for secured financing. Seller financing is typically unsecured and subordinated below all other debt.
SIMPLE INTEREST – The interest on principal only as compared to compound interest, which is interest on both principal and accumulated interest.
SINGLE-PARTY LISTING – The terms are established if we sell it to one (or more) specific Buyer Prospects. We are not allowed to advertise it or tell anyone else the business is for sale; it is "restricted" to the people/companies shown on the agreement. If we do not sell it to the specific Buyer Prospect(s), then the listing terminates. Obviously, others and the Seller can bring the buyers as well. We use "Single-Party" listings to get a "Exclusive" listing. If we have any kind of plausible Buyer, who will want to look at the business, we use that to get a relationship with the Seller. If the Buyer we bring doesn't buy it, we start to "walk away" from the seller. The Seller says "Hey, where are you going?" We say "Hey, our listing terminated and we do not have the right to show it or advertise it is for sale, so good luck." Then they say "Wait a minute, I like the way you operate, let's keep going." At that point we convert it to an "Exclusive Listing."
SOLE PROPRIETORSHIP – A business owned by one person or married persons. The owner is personally liable for the debts of the business. The business is not incorporated.
STATUTE OF FRAUDS – State law which provides that certain contracts must be in writing in order to be enforceable by law; e.g. the sale of real property, a lease of real property for more than one year, broker’s authorization to act as an agent on behalf of his/her principal.
STOCK SALE – The buyer purchases the stock in a corporation so the corporation is acquired in whole and the buyer obtains all assets and liabilities. Buyer gets no step up in basis in the underlying assets in the corporation (unless a not often used tax election is made).
STRUCTURE (TRANSACTION TYPE) – The method in which the target and the buyer exchange value. The target sells either assets or stock, and the buyer provides consideration primarily in the form of either cash or stock. The parties could also merge by exchanging stock.
SUBLEASE – A lease where the lessee can be the lessor, in effect, on a subsequent lease. The owner of the property often must approve in writing the tenant’s right to sublease to a new tenant. This is different from a “master lease” where the lessee has greater control over subletting the property.
SUBORDINATION – The act of making an encumbrance secondary or junior to another lien.
SURVIVAL PERIOD – The length of time (in months) after the closing date during which the representations and warranties must be true and the seller is responsible for indemnifying the buyer (e.g., claims by the buyer must be made on or before that date).
SYNERGY – The post-acquisition performance, in which the profitability of the continued entity is greater than the sum of the profitability of the individual entities before the acquisition.
STATUTE OF FRAUDS – State law which provides that certain contracts must be in writing in order to be enforceable by law; e.g. the sale of real property, a lease of real property for more than one year, broker’s authorization to act as an agent on behalf of his/her principal.
TENANCY IN COMMON – (See Joint Tenancy) Two or more persons holding an undivided interest in the same property. Each tenant can dispose of his/her undivided interest by deed or by will; upon death, the interest descends to the heirs.
TERMS WITH SPECIAL LEGAL MEANING – Double Materiality Scrape, Fair Presentation, In All (Material) Respects, Knowledge, Material Adverse Effect, Operation in Ordinary Course, Sandbagging, 10b-5 Full Disclosure, etc. You should ask the attorney, who writes these, exactly what they mean.
TITLE – Evidence that the person or entity claiming to be the owner of the property is in fact the lawful owner thereof; an instrument evidencing such ownership.
TITLE INSURANCE – Insures the interest of the buyer or mortgagee in real estate.
TRANSACTION VALUE – The total of all consideration passed at any time between the Buyer and Seller for an ownership interest in a business enterprise and may include, but not be limited to, all remuneration for tangible and intangible assets such as furniture, equipment, supplies, inventory, working capital, non-competition agreements, employment and/or consultation agreements, licenses, customer lists, franchise fees, assumed liabilities, stock options, stock or stock redemptions, real estate, leases, royalties, earn-outs and future considerations.
TRIPLE NET LEASE – A lease in which the tenant (lessee) pays a pro-rata share of normal property expenses such as real estate taxes, insurance, maintenance, etc., thereby assuring the landlord (Lessor) of a fixed income.
UNIFORM COMMERCIAL CODE (U.C.C.) – State laws which regulate the transfer of personal property. Article Nine of the U.C.C. deals with transactions which are intended to create a security interest in personal property.
VALID – Legally binding.
VALUATION APPROACH – The Valuation Approach is a general way of determining a value indication of a business, business ownership interest, security or intangible
DRE # 01261345
3750 Mckee Rd, Suite B, San Jose, CA 95127
(408) 646-1050