By: Kelly Stewart

Buying a business is one of the most transformative decisions an entrepreneur or investor can make. It can create new income streams, open doors to new markets, and accelerate growth far beyond what organic expansion would allow. But behind every deal lies a hidden minefield of risks. Jeremy Tomes, an attorney who has spent his career advising business buyers, argues that too many acquisitions fail not because the numbers were wrong, but because the legal protections were missing. His message is simple but powerful: buying a business without legal counsel is not just risky—it’s reckless.

The Allure of the Deal

Entrepreneurs are visionaries by nature. They see opportunity where others see problems. A distressed business looks to them like a turnaround play. A profitable business looks like a chance to scale. Brokers, bankers, and accountants reinforce this optimism with spreadsheets, pro formas, and financing strategies. Yet optimism alone does not transfer ownership. Tomes cautions that the most important element of a deal is not the excitement, not the financing, and not even the valuation. It is the legal framework that defines what the buyer actually gets, what risks they are assuming, and how disputes will be resolved.

Risks Lurking Beneath the Surface

The problem with acquisitions, Tomes explains, is that the risks are often invisible at first glance. A buyer may review financial statements, tour facilities, and meet key employees, but the legal realities are hidden in contracts, regulations, and obligations that are not easily spotted without an attorney. Among the most common risks are:

• Undisclosed Liabilities: A company may have pending lawsuits, tax obligations, or environmental fines that do not appear on the balance sheet. Without legal review, a buyer inherits these headaches the moment the ink dries.
• Contract Restrictions: Many agreements with suppliers, customers, or landlords contain “change of control” clauses that allow termination if the business is sold. Without proper assignment provisions, a buyer may lose critical relationships the day after closing.
• Intellectual Property Gaps: The brand name, patents, or software that make the business valuable may not actually be owned outright. If intellectual property is not properly transferred, the buyer may discover that competitors have equal rights to use it.
• Employment Issues: Hidden wage claims, noncompliance with labor laws, or the absence of enforceable non-competes can create turmoil. Key employees may walk away, leaving the buyer with no team to run the business.
• Regulatory Noncompliance: Businesses in healthcare, finance, manufacturing, and countless other industries face strict regulatory frameworks. A missed license renewal or ongoing investigation could cripple operations.

Tomes insists that these are not rare scenarios; they are everyday risks that surface when deals are rushed without legal due diligence.

The Illusion of “Standard Contracts”

One of the most dangerous misconceptions buyers fall into is the belief that a standard contract is “good enough.” Tomes has seen countless entrepreneurs download template agreements or rely on boilerplate language provided by brokers. The problem is that no two businesses are alike. Each company has unique assets, liabilities, and risks. A generic contract cannot capture these nuances.

For example, a purchase agreement might vaguely state that the seller represents the business is “in compliance with applicable laws.” Without attorney review, the buyer may not realize that this statement is unenforceable unless specific representations are listed. A well-drafted agreement would spell out compliance with tax laws, employment regulations, environmental rules, and more—giving the buyer legal recourse if violations surface later.

How Attorneys Protect Buyers

Tomes emphasizes that attorneys do far more than review paperwork. They act as risk managers and deal architects. Their work includes:

• Conducting Legal Due Diligence: Reviewing corporate records, contracts, litigation history, and compliance status to uncover hidden problems.
• Negotiating Protections: Ensuring that representations, warranties, and indemnification clauses are strong enough to protect the buyer.
• Allocating Liabilities: Making clear which debts, lawsuits, and obligations stay with the seller and which transfer to the buyer.
• Structuring the Deal: Advising whether the purchase should be structured as an asset purchase (minimizing assumed liabilities) or an equity purchase (acquiring the entire entity).
• Ensuring Continuity: Drafting transition agreements, employment contracts, and vendor approvals so the business keeps running smoothly after closing.

These steps are not optional luxuries; they are the foundation of a secure acquisition.

The Cost of Skipping Legal Counsel

Many entrepreneurs hesitate to hire attorneys early in the process, believing it will slow down the deal or increase costs. Tomes warns that this thinking is short-sighted. The true cost of skipping legal counsel often comes later, in the form of litigation, lost contracts, or regulatory fines. A single lawsuit can easily outweigh the savings from cutting corners on legal review.

He recounts stories of buyers who purchased businesses with strong revenue streams, only to discover that the seller had outstanding tax obligations. Within months, government agencies came after the new owner for back taxes. Another buyer acquired a company whose key customer contracts terminated upon change of control. Revenues vanished overnight, and the buyer was left with a shell business. These disasters were preventable with proper legal counsel.

The Attorney’s Role in Negotiation

Another area where attorneys prove indispensable is negotiation. Deals are not won on numbers alone. Sellers naturally want to maximize their payout while limiting future obligations. Buyers want the opposite. Attorneys like Tomes provide leverage by identifying risks and demanding protections in exchange for concessions. For instance, if due diligence reveals pending litigation, the attorney can negotiate a purchase price adjustment or indemnification clause to protect the buyer. Without legal expertise at the table, buyers often concede protections they do not even realize they need.

A Balanced Approach

Tomes also notes that attorneys are not only essential for buyers. Sellers benefit equally. Strong legal counsel ensures that once they sell, they are not dragged back into disputes years later. Attorneys draft release clauses, clarify liability limits, and ensure fair payment structures. Deals where both sides have strong representation tend to close more smoothly and result in fewer disputes.

Turning Risk into Opportunity

While the risks of buying a business are significant, Tomes emphasizes that with the right legal counsel, they can be managed and mitigated. Attorneys do not eliminate risk entirely, no one can, but they transform unknown risks into known risks. They give buyers the information needed to make informed decisions: proceed, renegotiate, or walk away. That clarity turns uncertainty into confidence, allowing entrepreneurs to pursue opportunities without gambling blindly.

Conclusion

Jeremy Tomes’ philosophy is clear: attorneys are not obstacles to business acquisitions; they are enablers of successful ones. Numbers tell part of the story, but only legal counsel uncovers the full picture. From hidden liabilities to contract restrictions, from intellectual property to regulatory compliance, the risks of buying a business without an attorney are too great to ignore.

For buyers who want not just to close deals but to secure them, legal counsel is indispensable. The cost of skipping attorneys is not measured in billable hours saved; it is measured in lost businesses, drained bank accounts, and years of litigation. Tomes’ work is a reminder that in private equity, optimism must always be balanced with protection, and financial potential must always rest on legal foundations.

Learn more about Jeremy Tomes and his expertise in protecting business buyers at biglawcapitalist.com.

 

Disclaimer: The content provided in this article is for informational purposes only and should not be considered as legal or financial advice. Readers are encouraged to seek personalized guidance from qualified professionals for specific concerns related to private equity transactions.