Top Legal Risks in Utah Business Mergers
Navigating a merger in Utah involves many specific legal risks. These are mainly centered on successor liability, contract enforceability, and litigation related to the deal. Failing to conduct due diligence in these areas can leave you and your acquiring company exposed to significant financial liabilities. Below, one of our Utah business law attorneys outlines the main legal risks in business mergers and how to mitigate them.
Successor Liability and Asset Purchasing
Although standard asset purchases typically protect buyers from the seller’s previous debts, the courts in Utah have recognized exceptions that can transfer these liabilities to the buyer. To mitigate this risk, it is essential to assess and negotiate structured escrow arrangements or indemnification clauses to protect your assets.
Enforceability of Restrictive Covenants
The courts in Utah closely scrutinize restrictive covenants such as non-compete clauses but tend to be more accepting when they are related to business mergers and sales. These clauses should still be narrowly tailored in duration, geography, and overall scope to ensure they will hold up in court. It is important to ensure any non-compete contracts or clauses comply with state regulations and that they are carefully drafted within the purchase agreement.
Ownership of Intellectual Property
Many businesses in Utah are tech-centered and therefore have a significant amount of intellectual property. Many business owners fail to formalize the ownership of this intellectual property before an acquisition. The buyer may purchase assets such as source code, domain names, or customer lists that the seller does not actually own because they are connected to an independent contractor or a founder. To mitigate this risk, it is important to conduct an in-depth audit that will verify all intellectual property is protected.
Real Estate and Lease Liabilities
Real estate can quickly change the economics of a merger. Failing to obtain landlord assignments, hidden lease escalations, and inflexible personal guarantees can complicate post-merger financials and in some cases, even derail the entire deal. To mitigate this risk, it is important to obtain formal landlord approvals and perform a comprehensive review of all commercial real estate obligations and restrictions.
Antitrust and Regulatory Scrutiny
Due to the rapid economic expansion in Utah, public competition is heavily regulated in Utah. This can impact larger-scale vertical and horizontal mergers. Mergers that threaten to monopolize a specific regional market or interfere with fair public competition will not be approved. It is important to work with a business law attorney from the beginning, particularly if competitor buyouts are involved or the transaction will exceed regulatory size thresholds.
Our Business Law Attorneys in Utah Can Help You Mitigate the Risks
When merging businesses, there are many possible risks that could threaten the entire transaction or not provide you with the protections you need moving forward. At AGS Law, our experienced Utah business law attorneys can help you navigate the different aspects of the deal, ensure protections are in place and that you comply with all regulations to ensure that the process is as smooth as possible for you. Call us today at 801-477-6144 or fill out our online form to schedule a consultation with one of our experienced attorneys and to learn more about how we can help.
