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Legal Steps to Take When Selling Your Business

By: Blake Hinson December 4, 2020 no comments

Legal Steps to Take When Selling Your Business

Have you built a successful business but now you are ready to sell? If you are serious about selling your company, seek legal counsel to ensure you protect the business you worked so hard to build. To start, we have broken down legal steps to take when selling your business.

There are two common structures for selling a business:

Sale of Equity– shares of stock for a Corporation, Membership Interests for a Limited Liability Company, and Partnership Interests for Partnerships. This option is likely to be favorable capital gains tax treatment for a sale of equity but offers an increased risk of liability for the buyers.

Sale of Assets– This option is likely not to be eligible for capital gains tax treatment but offers increased liability protection for the buyer.

Once you decide which structure you will sell your business, you should understand the five primary parts of the sales transaction agreement.

  1. Equity or assets being sold. Ask yourself the following questions:
    • What are you selling?
    • Are you keeping anything?
    • Do the assets involve real estate?
    • Are there any excess assets?

2. Purchase Price:

  • How much will you receive?
  • Add backs
  • Make it easy on the buyer

3. Representations and Warranties. What assurances will you give the buyer?

4. Covenants

  • How will the business be operated before closing?
  • What will the parties do after the closing?

5. Buyers Remedies

  • What may the parties do if there is a breach?
  • What may the buyer do if the business does not turn out to be what was anticipated?

If you are serious about selling your business, engage with legal counsel early. Letters of intent should be negotiated aggressively and lay out the sale transaction with your advisers. Lastly, focus on what is important to you in order to protect your legacy, and do not be afraid to back away if you have a change of heart.

Contact the office of Harris Cook, LLP at 817-275-8765 to discuss more on the legal steps to take when selling your business.