Legal Clean Up Before You Market Your Business
Sooner or later, most business owners consider the prospect of selling their business. This could be initiated by a prospective buyer asking if your business might be for sale, you might be approaching retirement, or it might be Friday afternoon after a very long week.
Before offering your business for sale make sure there aren’t any legal issues. Many deals get off track because of legal issues that arise in the middle of due diligence when they can be very costly to fix, and if they arise after closing the costs can skyrocket. Here are a few of the more common issues we have seen.
Who Owns the Business and Whose Consents are Required?
One of the first and most basic issues from a legal perspective is to be certain who owns the stock or assets being sold, is it being sold free of any liens or encumbrances, and whose approval is required to sell it. If the corporate records have not been properly maintained, stock certificates have not been correctly authorized, stock transfers have not been documented properly, elections of officers and directors are not documented, or annual meetings missed, there will be a lot of last minute, frantic, and expensive work to clean these matters up.
If there is real estate involved in the sale review the county title records to understand exactly who is the owner of record, and what mortgages or easements might be encumbering the real estate. A problem discovered late in the negotiations might delay closing, or even jeopardize the deal.
Compliance With Laws and Regulations.
Legal due diligence to ensure that there are no major legal non-compliance issues may be relatively easy, or it might be a time-consuming task. For example, the buyer will want to ensure that the people working for the company but classified as independent contractors are not actually employees. If a business has been treating employees as independent contractors, each employee, and several government agencies, including the IRS, could have sizable claims against your business.
Are the Contracts and Permits Assignable?
Some businesses have a significant portion of their value in long terms contracts, subscriptions, leases, or government permits. The buyer will want to be sure that the contract or license will still be in effect after the business is bought. Review all significant permits and long-term contracts and leases for assignability issues before marketing your business for sale.
The good news is that these and a score of other potential issues can be handled well in advance of marketing your business for sale. The advisors at Business Research Group have been helping business owners get more time, more money, and more enjoyment from their business for over 15 years. We can guide you through the sales process, and bring in expert advisors as needed to deal with situations you have before they become deal breakers. Start the process by taking a 13-minute questionnaire. When you hit submit you will immediately receive your Value Builder Score which has been statistically proven to correlate with the value of your business.