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Due Diligence Before Buying Into A Florida Business

March 14th, 2022

A party considering buying into a business in Florida should prepare itself to perform due diligence. This applies equally for those investing in a business and those purchasing an entire business or just the business assets. Some significant considerations in this due diligence are where to begin, to what extent one can rely on a seller’s representations, and what to document in the transaction.

Buyers need to recognize that Florida law generally deems those who participate in a business venture to be sophisticated business people. Therefore, any party involving itself in a Florida business should perform some level of due diligence. The level and amount of due diligence is highly specific to each transaction. Engaging the experience of business attorneys, valuation experts, financial advisors, and business brokers will aid in this undertaking and focus the due diligence.

A good place to begin this due diligence is by requesting to examine those books and records that Florida law requires businesses to maintain. These records and the corporate formation documents can illuminate the manner in which the business has been operated. They can also help in verifying the seller’s representations.

Under Florida law, those parties buying into a business may rely on certain representations of a seller. However, whether that reliance is justified and to what degree the representations affected the buyer’s obligation to verify the information are considerations that Court’s review in adjudicating misrepresentation allegations. Therefore, relying entirely on a seller’s representations without verification is often imprudent and may even weaken otherwise valid misrepresentation claims. Therefore, a better approaching due diligence is to independently verify important representations.

Maintaining clear records is also an important part of proper due diligence. Some key facts to record in the transaction are naturally the seller’s representations that significantly impact the buyer’s decisions. It is also equally important to document the scope of the transaction and precisely what property or assets are covered by it. By so doing, the parties will have a comprehensive understanding of the scope of the transfer.