At Monahan Law Firm, our Glendale business sale attorneys make special efforts and consideration for entrepreneurs looking to sell their companies, as we know these are the clients that have put in the most work and deserve to have a well-educated and experienced team on their side so that our clients can finally rest.
Building a successful business, a business that other people may be interested in purchasing is something to be extremely proud of. It normally takes years of hard work to reach a point where other people are interested in becoming a business partner or buying your business and this is a point that many business owners never reach.
If your business has potential buyers buzzing around, it is imperative that you have the right team on your side to help you negotiate the best deal for selling your business. When you've worked hard to build a successful business, you deserve to be properly compensated for the hard work and mental load you put in to reach that point.
Legal Issues to Consider When Selling a Business
The two biggest issues that many people do not think about when buying or selling a business are deals that have been made between the original business owner and vendors or partners, etc, and will any debts owed to or by the business are the time of transfer of power.
With all incorporated businesses, debts belong to the business, not the owner of the business. Without a prior discussion and signed agreement, these debts will automatically stay with the business and become the responsibility of the new owner to handle. If debts are not disclosed and discussed prior to sale, purchasers may feel slighted or upset over debts that were unaware existed.
A sale of a business where a buyer assumes the business should not be confused with the sale of business assets where the general rule of successor liability is that a sale of the principal assets of a corporation does not result in imposition of successor liability unless, generally, there is (1) an agreement, (2) a merger or consolidation, (3) a “mere continuation,” or (4) fraud. Restatement (Third) of Torts: Products Liability § 12.
Prior deals with vendors, customers, or partners can also cause legal issues, especially if these deals are "handshake" agreements, i.e spoken agreements or deals rather than contracted deals. For example, if you purchase a restaurant that has a verbal agreement with a food vendor that you are unaware of, and decide to use a different food vendor, this can cause legal problems between you and the original vendor, even if you weren't aware there was an agreement in place.
Your business is also, in certain ways, your intellectual property. This means that in selling your business, you are also selling a lot of your ideas and thoughts, which you can no longer claim ownership over. You may wish to retain a portion of the business, or you may wish to be paid dividends or a percentage of profits in perpetuity, because of that intellectual property. Having a good legal team on your side can help you negotiate the correct deal for you and your potential buyers.
Legal Documents Necessary When Selling a Business
There are four different legal documents needed to sell a business in the United States, which are as follows:
A Letter of Intent
This letter is essentially an offer for the sale/purchase of the business, or could even be called rough drafts of the final contract. Multiple letters of intent may go back and forth before moving on to the next step in the sale process.
Buyer's Due Diligence
Normally included as part of the Letter of Intent, this is an acknowledgment by the potential buyer that they are responsible for doing their own research into the business before deciding to buy. This research includes things like an inventory of assets from businesses, any debts the business may hold, the business credit file, business credit scores, past or potential business bankruptcy, etc.
The business purchase agreement is the final draft of the sale contract, includes all terms agreed to by the seller and buyer, and includes the buyer's method of payment, whether this is an agreed-upon payment plan or a lump sum amount.
Transfer of Ownership
The final legal document required in the process of selling a business is the transfer of ownership. Similar to selling a house, or a car, once the final contract has been signed and the buyer's method of payment has been completed, the seller will then transfer the business into the name of the buyer, making them the legal owner of the business.
How an Attorney Can Help With a Business Sale
While these documents may seem simple enough to do by yourself, obtaining legal services is the right way to go. Any mistake in the Purchase agreement or Transfer of Ownership can cause large issues, for both the buyer and the seller.
If the seller does not provide a proper disclosure in their Letter of Intent, for example, and therefore the buyer was unable to complete their due diligence, but did not realize until after the sale was final, the buyer would then be able to sue the seller for any damages this mistake caused.
Hiring an attorney for assistance in the sale of your business can save you from a lot of damage control later down the line, especially if you hire an experienced attorney that specializes in business law. Your attorney is also able to negotiate a fair deal on your behalf, though you will always have the final say in every decision when it comes to selling your business.
This makes it a lot easier for you to simply sell your business, rather than having to deal with each and every minute detail of the inspection of records and the business by the buyer, and the rest of the process.
Call Us Today for Help With Business Sales
Whether you've already received an offer on your business, or want to test the waters to see if anyone might be interested in purchasing your business, it's never too soon to secure a legal team to handle the sale. Call Monahan Law Firm today to schedule a consultation, and let our Glendale business lawyers help you down the path to retirement, or something new.