Selling a business is a major decision that involves many important considerations. To ensure a smooth and successful transaction, Carmel & Naccasha, LLP shares that it is essential to prepare thoroughly and work with a team of professionals who can guide you through the legal, financial and operational aspects.
Key Legal Considerations
- Structure of the Sale
Decide early whether the sale will be a stock sale (selling company’s shares) or an asset sale (selling business assets only). Asset sales are typically preferred by buyers due to their ability to select specific assets they want to purchase and limit liabilities that they want to exclude from a purchase, such as an employment claim or a line of credit. Each structure has different legal and tax implications, so we recommend consulting with legal and financial professionals to determine the best fit. - Due Diligence
Once terms are negotiated and a purchase agreement is signed, the buyer will conduct due diligence—reviewing financials, contracts, leases, and other information about the business to see if they really want to purchase it. Sellers should be transparent and organized and set a reasonable deadline to complete the due diligence so they can discern if the buyer is serious or just “kicking the tires”. - Contracts
Key documents include the purchase agreement, non-compete and indemnity clauses, and confidentiality agreements. These should clearly outline terms such as price, payment, indemnities and conditions. A Non-Disclosure Agreement (NDA) is crucial before sharing any sensitive propriety or confidential information. - Intellectual Property (IP)
Trademarks, copyrights, patents, and trade secrets must be properly transferred or excluded in the Purchase Settlement Agreement (PSA). The operative agreements should clearly describe what IP is included or excluded to avoid future disputes. - Employee Matters
Employees are vital to a business’ value and their future employment should be carefully considered. As part of the business considerations, familiarize yourself with employment contracts, options, benefits, claims, and compliance with labor laws to ensure a smooth and clear transition. - Tax Implications
Consult a CPA or tax advisor to understand and minimize tax liabilities in the way transactions are structured so that there is no surprise at year-end. Proper planning can significantly impact net proceeds from the sale.
Final Steps
The sale isn’t complete until payment is received and assets are transferred. After closing, remember to:
- Close or transfer business bank accounts.
- Cancel business and health insurance policies.
- File any necessary dissolution forms with the California Secretary of State Selling a business involves various legal aspects that require careful consideration and planning. By addressing these key legal considerations up front, sellers and buyers can navigate the sale process successfully and avoid potential legal issues.