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So you have decided to sell your business…

So You Have Decided To Sell Your Business…

“When is the right time to sell my business?” is a question business owners consider regularly. Considering “Should I sell my business?” is not a sign of trouble or financial desperation but could be a sign that you are ready to move towards your next opportunity, or that you are ready to retire and enjoy the rest of your after-career life. Timing is everything, and that is especially true when it comes to selling your business. Regardless of the type of business you have, or your reasons for wanting to sell, there are legal steps that need to be followed.

Buying or selling a business can be a highly speculative venture, but both sides of the transaction are looking for the same thing: value. For both the buyer and seller, the acquisition or sale of a business presents potential challenges and real risks. An experienced business attorney will be able to guide you through each step so you can buy or sell a business with confidence.

Although the sale process varies depending on the ownership arrangement or corporate structure, both the buyer and the seller need to engage in considerable due diligence so there are no surprises about the terms of sale or details about what is being sold. Both parties will be sharing a considerable amount of nonpublic information, so it is important to have a nondisclosure agreement, commonly called a nondisclosure agreement (NDA for short), in place early on in the buying and selling process.

The terms of the transaction, often referred to as deal terms, are normally first outlined in a Letter of Intent or Term Sheet, and then detailed in a definitive purchase agreement after negotiations and due diligence based on the Letter of Intent or Term Sheet. The Letter of Intent or Term Sheet contains the basic structure of the sale or merger, and carefully considering the terms stated in this document is in the best interest of both the buyer and seller. A business lawyer experienced in buying and selling transactions or mergers of businesses will draft this to include, among other details, amounts and types of consideration to be paid, the assets and liabilities that transfer with the entity; the process by which the entity is to be acquired, such as merger or acquisition; and the schedule by which to proceed. Regardless of whether you are the buyer or seller of a business, if you are the recipient of the proposed terms in the form of a Letter of Intent or Term Sheet, a qualified business attorney
can review the document with your best interests in mind before you sign.

Although Letters of Intent and Term Sheets are normally “nonbinding”, be aware that once you have indicated in a Letter of Intent that you are accepting a certain outline of basic terms, it is very difficult to get the other side to accept material changes in the principal terms. They can argue that you are going back on concessions made, or adding unexpected complications or requirements, and that you were not acting in good faith. With regards to such changes, although you are not bound to do a deal without them, neither is the other side, and such changes can give the other party an excuse to walk away from the deal before it gets to the definitive agreement stage.

Regardless of the type of business being sold or the details of the deal terms, all business transfers have serious state and federal tax implications to need to be addressed. If you are selling or buying a business, before you sign a letter of intent or term sheet, you should consult your accountant or other tax advisor as well as your business attorney to make sure you are aware of your tax responsibilities. In addition, acquisitions and mergers raise a variety of regulatory compliance issues ranging from antitrust concerns to the environment on which qualified legal counsel can advise you.

If you get past the letter of intent or deal terms stage, you will need qualified counsel to assist you in negotiation and drafting of the definitive purchase or merger agreement. Having someone experienced in business transactions is key to obtaining favorable terms that protect your interests and at a minimum are fair and reasonable for the market and the industry involved. This agreement will control not only the transactions themselves, but potential claims of the parties against one another after the closing arising out of the transactions and the operation of the business, and representations and covenants made to one another in the course of the transactions. There are many opportunities in the definitive agreement to assure that you have as much protection as possible and that you understand any risks which you are taking and what the potential consequences of those risks would be under the circumstances of your transaction.

Similar to the purchase of commercial or residential real estate, buying a business includes a closing process. Closing on a business purchase require an attorney to oversee not only the transfer of assets and funds, and execution and filing or recording of all necessary documents, but every detail of the transaction, accounting for every contingency, including default and termination provisions.

Selling your business can feel as daunting and complex as starting and building it did. Just as every business is different, so every transaction to sell a business is different. Each requires different types of assistance to represent your best interests. At a minimum, the business buyer and seller need the support of an experienced tax consultant and lawyer who have guided clients through the sales process.


Beth Atkins has over thirty-five years of experience in handling a wide range of business matters. She establishes long term relationships with business clients from formation to dissolution, and in handling their varied organizational and contract matters and business financing arrangements. We’re here to help when you need us most. Contact Beth today: batkins@hsfh.com or 252-633-3006.

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