JUNE 25, 2021

How Do I Sell My Business? How To Buy a Business? 

Selling a business can be a complex and confusing process.  There are a variety of methods and approaches to take when selling or buying a business.  In general, I generally classify the transaction either as an asset sale or a share sale.  In most of the small business type sales I help with, I recommend using an asset sale. An asset sale is like it sounds, the seller is simply selling the assets owned.  In this blog post, I am going to focus on the asset sale approach. 

An asset sale goes something like this: the seller has assets including a book of business, tangible assets, and some goodwill.  The buyer wishes to acquire some or all of the assets but does not want to become liable for past business of the seller.  By simply selling the assets of the business, the buyer can acquire the good (i.e. the assets) and not acquire the bad (i.e. the liabilities). 

Assets don’t just need to be tangible to be sold.  An example of a tangible asset is a piece of equipment or a vehicle.  Tangible assets sometimes can more easily be given a value by the buyer and seller.  Sometimes intangible assets such as goodwill or customer lists can be harder to value.  In these cases, there are many different valuation methods and appraisal standards.  These valuation concepts are a discussion for a different blog. 

The process of an asset sale often tracks the following steps.  First a purchase agreement is signed between the buyer and seller.  The purchase agreement lays out the terms and conditions of the transaction.  Such terms may include a closing date, price, due diligence, jurisdiction, assets, and so forth.  After the purchase agreement is signed, a due diligence period is started wherein the buyer gets to examine the assets being acquired in great detail.  I typically like to see the buyer have the right to fully review all aspects of the business.  The buyer’s right to examine all aspects of the business protects both the buyer and the seller.  If the buyer has remorse, the buyer will have a more difficult time alleging the seller defrauded them, therefore protecting the seller.  The buyer will have more opportunity to understand the acquisition and therefore make a fully informed decision, therefore protecting the buyer. 

Once due diligence is completed, a closing plan is put into place.  Documents that may be needed for closing include deeds, titles, non-competes, pro-ration agreements, bill of sale, promissory notes, security agreements, UCC filings, corporate resolutions, assignments, warranties, franchise documents, state filings, dissolution agreements, and so forth. Often times, in a small business the seller provides a “seller carry.”   What this means is that the seller finances a portion of the sale price.  In this case a promissory note would be required that promises that the buyer will pay the seller a certain amount over an agreed time period.

We at Fargo Patent and Business Law have experience running businesses and understand business.  This unique trait can help bridge the gap between the needs of business and the demands of the legal system.  If you have a question, please don’t hesitate to reach out.

Fargo Patent & Business Law, PLLC – in**@fa************.com – 701-566-7571