Business acquisitions are highly complex and are therefore best handled with the help of an experienced attorney. Here is a look at just a few of the many facets of selling a business that you may not have considered.
Asset or Stock Sale
One of the first decisions you must make when selling your business is whether to structure it as an asset sale or a stock sale. In the case of an asset sale, the buyer purchases individual assets, while the seller maintains possession of the legal entity. In the case of a stock sale, the buyer purchases the owner’s shares of stock. A stock sale, of course, is not possible if the business is structured as a sole proprietorship, partnership, or limited liability company (LLC), as none of these have traditional stock. In these cases, the seller can sell their partnership or membership interests rather than having the entity sell its assets.
Tax consequences
How you structure your sale-of-business transaction has a great many federal income tax implications as well. A stock sale, for example, can advantageous to the seller for tax purposes; generally, any money earned through the sale of stock is taxed as capital gain, which is often taxed at a lower rate than ordinary income. An asset sale, meanwhile, is typically advantageous to the buyer because the buyer can obtains the assets with a higher tax basis, which allows for additional depreciation and less gain on the sale of the assets.
Financing the transaction
Where is the buyer going to get the money to purchase your business? Will it come from an outside lender, such as a bank or investment firm? Or will you, the seller, finance the buyer? Each financing option has its own set of pros and cons, and an attorney who specializes in business planning can help you which option will be most advantageous for you as the seller.
Intellectual property rights
How will all intellectual property rights transfer upon the sale of your business? Even if your business hasn’t gone through the process of registering a copyright or trademark or procuring a patent, chances are there is some intellectual property involved. Trade secrets, general know-how of a business, domain names, third-party licenses (e.g., Microsoft Office), and web hosting and development contracts, for example, can all qualify as intellectual property. An attorney who specializes in business acquisitions can help you determine what intellectual property is involved and set guidelines for how this intellectual property will be transferred upon selling your business.
Non-compete and non-solicitation agreements
If you have plans to stay in the same industry after selling your business, then you may need to negotiate a non-compete or non-solicitation agreement. A non-compete agreement can protect the new business owner from you opening a similar business in the same geographic location for a defined period of time. A non-solicitation agreement, meanwhile, will prevent you from hiring former employees or approaching customers of your old business after you sell.
These considerations truly only scratch the surface in the world of business acquisitions. If you are considering selling your business, you should definitely consult an experienced attorney who can help navigate you through the process.