Selling your business and reaping the rewards of years of hard work is the dream of every business owner. You need the right team behind you. Selling a business is different than buying one. Sellers and Buyers look at the transaction in opposite terms. The documents you used when buying your business can be useless to you as a Seller – they don’t look after your best interests.
No matter the size of your business, at the minimum, you must obtain basic legal and accounting advice before and during the sale process. A misstep could not only wipe out all of the value that you have built up in your business but could even open you up personally to liability claims by the Buyer.
The timing of when to bring in an experienced attorney to work with you is important. Some owners involve an attorney early in the negotiations. In addition to the basic price and terms, there are many other issues to be negotiated during a business transaction. The status of accounts receivable, liability for debts, assignment of lease, and covenant not to compete are just a few important items. An attorney can offer advice on how to investigate the legal and financial qualifications of a possible Buyer and recommend the legal business structure of the sale.
Of course, the goal is to sell the business and get paid for it. Having the right documents which protect your position as a Seller will help you in many ways:
- Protect You from Liability: After the two sides have finished negotiating the basic rights and responsibilities, you should ask your attorney to draft the Purchase and Sale Agreement. Each transaction is unique and this is no time to rely on standard boilerplate language. It is too important. For example, two of the most overlooked sections are the Seller’s warranties and representations to the Buyer and the Buyer’s indemnity protecting you in the future. The Agreement must carefully spell out what you represent to the Buyer as well as the Buyer’s duties to you after the sale.
- Protect You in Case You Need to Take the Business Back: Many businesses are sold using seller financing. Even though you hope your Buyer has good business sense, he or she may not. They may not know how to run your business as well as you did. You may risk losing your payment. It is absolutely essential that a Seller has adequate security and the documents give you maximum protection.
- Provide the Proper Disclosures to Protect You. Even after the deal is over, a Buyer could overturn it and get his money back if the Buyer claims successfully that the Seller failed to fully disclose what he knew about the business. Common claims by the Buyer allege misrepresentation of inventory value and deception of the potential value of future sales. The Purchase and Sale documents need to be drafted with this in mind.
- Prevent Problems with the Closing Documents. If there is any difference between the closing documents and the Purchase and Sale Agreement, the closing documents will prevail. All the efforts to negotiate a favorable Purchase and Sale Agreement could be wasted. Instructing your attorney, who represents your interests, to prepare the business transfer legal documents is critical. Stock certificates, corporate resolutions, Bill of Sale, compliance with federal and state laws, assignment of lease, releases, and covenant not to compete are some of these documents.
As a Seattle business attorney for almost 20 years, I have worked with many owners who are selling and buying businesses. I believe that prevention of legal problems is just as important as coping with those which arise. Prevention is less expensive compared to the costs and heartache that you suffer when problems emerge afterward. Our emphasis is on highly personalized service.
While our business law offices are in Seattle, we have clients throughout the Puget Sound area. We do not charge for travel time. Call us at (206) 525-5500 for a free initial consultation.