Selling a business can be a stressful process—and it requires negotiation, contract drafting, organization of financial documents, and so on. Below, we’ll help you break down the basic steps of selling a business and why it’s best to hire a business lawyer to handle the complexities that typically arise.
Types of Business Sales
Most small businesses are sold as one of the following:
- Asset Sale: The buyer purchases some, or all, of the seller’s assets (including equipment and inventory) but not their debts or liabilities.
- Stock Sale: The buyer purchases all, or most, of the seller’s assets, including debts and liabilities and completely takes over for the seller
A business lawyer will assist you in deciding which of the two options is best for your situation. As more due diligence is involved for the buyer in a stock sale, hiring an attorney safeguards both parties from the beginning.
Steps of Selling a Business
1. Preliminary Negotiations
As the seller, you will typically need to compile the following documents:
- A non-disclosure confidentiality agreement
- Personal financial statement form to be completed by the buyer
- Offer to Purchase agreement
- Note of Seller Financing
- Current financial statements, along with financial statements for up to three years past
- Accounts aging reports, including both accounts payable and accounts receivable
- An inventory list detailing values
Both parties will then review the following:
- If approval of shareholders/board of directors is required for the sale
- If any government or third-party documents are required (like a certificate of good standing or title documents), and if any contracts require third-party approval
- If certain employees will be retained by the buyer after purchase;
- How tax records, sales receipts, and open or ongoing accounts will be transferred over
- Adherence to local laws for business transfer
- Finally, the creation of a letter of intent listing all terms of the transaction.
2. Drafting a Formal Agreement & Pre-Closing Review
The final, formal agreement will often include:
- The price and terms of the deal
- When the business or assets will be turned over
- Whether a third-party escrow agent will be involved
- Any other details, depending on the type of sale
Completing the sale generally finalizes that:
- All documents are signed and notarized, if needed
- All the sales proceeds are disbursed properly in accordance with the terms of the agreement
- The official recording of all documents, equipment, or property
Hire a Business Lawyer
Your attorney will be indispensable in negotiating, drafting, and reviewing all relevant agreements you’ll be expected to sign in the transfer and sale.
As local laws can complicate things further and add to your paperwork, hiring an attorney with thorough knowledge of such will prove advantageous. Ultimately, minimizing taxes and potential liability issues are the major concerns for buyers and sellers when structuring a deal, as well as confirming that both parties are providing accurate financial information. It’s best to hire a lawyer up front to prevent any headaches later.
Looking for an Experienced Business Lawyer?
Contact KTF Law Firm for a consultation. Our legal experts will guide you through the process, customize agreements to your needs, and ensure you come away with the best deal. We look forward to working with you!