You would be surprised the number of people who jump into legally or contractually binding relationships or agreements without fully appreciating their obligations or risks, and thus, like a prayer, just hoping things will work out.
Here is a checklist of some of the due diligence enquiries you should undertake when enter into a new legal relationship:
1. Business purchase
- Company search if the seller is a company
- Bankruptcy search if the seller is an individual
- Personal Properties Securities Register search: check if the assets are encumbered
- Accountant’s review: have your accountant look at the financials to help ensure they check out
- Solicitor’s review – have your solicitor review your contract so you know what you are getting into and to help to ensure you are getting exactly what you bargained for.
2. Lease
- Property search: does the landlord actually own the property? Is there anything to prevent registration of your lease?
- Accountant’s review. This will give you advice about your financial obligations, in most cases this is required under the Retail Shop Leases Act
- Solicitor’s review so you can understand your obligations; again in most cases this is required under the Retail Shop Leases Act.
3. Franchise agreement
- Company search if the franchisor is a company
- Bankruptcy search, if the franchisor is an individual
- An accountant’s review will give you advice about your financial obligations; some franchisors require you to obtain this advice
- Solicitor’s review. Understand your obligations; some – again some franchisors insist on this.
Make sure you do your due diligence. It is a small expense and effort compared to what could happen if you just take the risk.
This article is not to be relied upon as legal advice; you should seek specific advice from a franchise lawyer for your circumstances.