I routinely represent clients that are either buying or selling a business. Selling a business requires evaluating different issues than one looks at when evaluating buying a business. Before a business owner makes the decision to “sell” their business, there are major preliminary legal due diligence matters to consider aside from the determining the price and marketing strategy.
Most business have debt usually in the form of a bank loan secured by the business and all of the owner’s personal assets. Bank loans typically have provisions and covenants that govern the sale of the business. Some loans have a prepayment penalty and occasionally a loan is assignable (though not very common). The business owner needs to understand what restrictions to a sale might be buried in the loan documents.
Many businesses do not own real estate but lease office space, buildings, warehouse space, etc. where they conduct operations. Most commercial leases have certain restrictions and or provisions that require landlord approval to sublease or assign the respective tenant rights. Some leases are drafted such that the landlord can require the business owner pay a material “assignment fee” otherwise the prospective buyer cannot take over the lease.
If the business owner operates a franchise business then the Franchise Agreement needs to be reviewed carefully to see if the agreement is assignable or if the buyer may otherwise meet the franchisor’s qualifications to run the business.
Once a business owner determines that there are no legal impediments to selling the business, they need to understand the federal and state tax implications of a business sale. It may be best to sell the entire business entity or only sell the business assets. Or, it may be best to delay a sale or see if there is a way to defer some of the taxable gain that might result from a sale.
A business lawyer like myself can guide business owners through the pre-selling evaluation process and help the client avoid unintended consequences.