Legal Issues To Consider When Selling A Business

Sellers of privately-held companies should focus on two types of legal issues before marketing their businesses for sale. The first issue involves protecting a business from the concerns of opening up its books and records for evaluation by potential purchasers, which could include competitors of the business.

The second issue involves preparing a business for the impending transaction process. This means dispensing with factors that could be a limitation to a transaction that the sellers would like to pursue, and those factors that could adversely affect the negotiating position of the sellers or the terms of the business deal the sellers finally receive.

Most sellers of privately-held businesses are very aware of the protective concerns, and they deal with these issues early on in the sales process. However, many sellers often don’t contemplate the above legal issues until they arise during the actual sale.

This post mainly outlines issues of the second type. Dedicating some thought to the legal issues outlined below in advance of entering into discussions with a potential purchaser will allow you to strengthen your negotiating position and maximize the business deal.

Corporate Clean-Up Issues

Proper Minute Books

Make certain that the corporate record books for your company are all-inclusive and in order.

Trademarks or Service Marks

If you have designed a service mark or trademark for your company that you plan to transfer as part of the sale, consider registering the mark with the appropriate governmental authorities—if you haven’t already done so.

Agreements for Employees

Consider having central employees sign an agreement, if they haven’t been required to already, that disallows them from competing with the company or soliciting clients after the termination of their employment.

Contract Review

Real Property Leases and Additional Contracts

You should appraise any contracts that the potential purchaser will assume in an asset purchase transaction, such as any property leases, to see whether they can be appointed without the permission of the other party to the agreement.

Employee Benefits

Similar to the leases and other agreements to which your company is part of, you should review all employee benefit plans that the business has so that you are equipped to assign or conclude those plans.

Shareholders Agreement/Operating Agreement

Have any business partners who part of an agreement relating to the function of your company sign Shareholders Agreements/Operating Agreements.

Proprietorship of Intellectual Property

If intellectual property is a major asset of your business, you should be able to properly document your company’s title to the intellectual property before marketing the business for sale.

Transaction Structure

The majority of small business sales will be planned as an asset sale or as a stock sale. Most purchasers will choose to buy the assets of your company, rather than the stock you own in your company.

Looking for sound legal advice for your organization, business or corporation? Contact KGPC LLP today.

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