Q & A on Selling Your Business
Why are you building a business?
In addition to providing yourself employment together with the flexibility, control and responsibility of business ownership, most people build businesses to sell them at a gain in order to retire or to build another business.
How do you document the sale of your business?
There are two primary ways to sell your business. You can sell the assets or you can sell the equity (typically stock, LLC membership interests, or partnership interests). These are documented quite differently and can have completely different tax benefits to the parties. Additionally, a question that needs resolved is whether continuing liabilities of the business remain with the seller or become the obligation of buyer (typically documented by an indemnity from seller).
How do you expect to get paid?
To whom do you sell your business?
- Over time: It is atypical (not impossible though) to be paid 100 cents on the dollar for the sale of your business. Typically, buyers insist that you carry a portion of their purchase price. Documenting the collateral that seller takes in exchange for the carry back and agreeing upon any earn outs or minimum profit thresholds are complicated.
- At closing: If the value of the business is quite substantial, and there are sufficient types of collateral that can be pledged to a lender (meaning that not much value is attributed to goodwill or noncompetes from seller), a third-party lender might be willing to loan with a sufficient down payment from buyer.
There are three primary parties who are potential purchasers of your business:
Each of these options has separate challenges.
- Third parties
Selling to family has the challenge of negotiating what should be an arm's length transaction, using typical negotiating strategies, with family who might be your siblings or children.
Selling to a group of employees, other than the sale to an associate professional (such as is traditionally done by physicians, veterinarians and dentists), may require expensive and complicated tax work.
Selling to third parties has the risk of breaches of confidentiality or attempted theft of your business ideas, clients or employees.
After reading this....what if you want to sell anyway?
You should consult your trusted team. This should include at a minimum your lawyer, your CPA and your financial advisor. It might also include your insurance agent. It's very important that confidentiality be maintained, so you should emphasize this with your team and only use trusted advisors.
There are numerous other twists to this complicated subject. Should you have any questions, please do not hesitate to contact me or Mary Drury at (702) 942-2157.
Ms. Drury is a Shareholder in the firm of Marquis Aurbach Coffing in Las Vegas, Nevada, and is chairperson of their transactional department. Drury was named a Leader in the Field of Real Estate for 2011 and was also named by Best Lawyers in America in the specialties of Corporate Law and Real Estate Law for 2011. Ms. Drury's practice focuses on transactions, with an emphasis in real estate. She documents and oversees entity formation, land and business acquisition, construction agreements, loans (construction and permanent), general operational and contract needs, and the ultimate sale of land or improved properties and businesses. Ms. Drury serves on the Executive Committees of the State Bar of Nevada's Real Property Law Section and Business Law Section, which, among other things, draft statutes for consideration and adoption by the legislature of the State of Nevada. Prior to joining Marquis & Aurbach, Ms. Drury served as Associate General Counsel at Station Casinos, Inc. Ms. Drury has a Bachelor of Arts in International Relations and Print Journalism from the University of Southern California, with a minor in Business Administration. She has a Juris Doctor Degree from the University of California, Hastings College of the Law.