Selling a Business

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1.5    Transferring Ownership

Business owners have several options when it comes to transferring ownership rights. It is important to consider all your options before making a decision.

The first option you may want to consider is an outright sale. By selling a business in full, you will transfer ownership immediately and receive payment for your assets right away.

The next option is a gradual sale. This is a flexible option in transferring a business that tends to benefit everyone. After transferring business ownership, you no longer have to worry about running your business but you will still receive a monthly income from the gradual sale.

Another option is a lease agreement. By transferring your business ownership through a lease, you will commit to a contract that details the conditions and payments you will receive for the temporary rights to the business.

The final transfer option is transferring your business to a family member. Transferring your family business can be a little more complicated than expected. Additional tax implications, such as estate and gift taxes, generally arise for both parties. Your business type will affect what steps are required to transfer ownership as well as the tax implications of your transfer.

Be sure to engage your lawyer and even a business evaluation expert BEFORE you embark on your exit strategy. That way, you will be sure that you have explored all the options available to you.

1.6    Steps to Succession Planning

If you plan on transferring ownership of your business, an important step to take is to develop a succession plan. SCORE, a nonprofit association dedicated to entrepreneur education, has outlined five steps to succession planning. Following these steps will help provide practical direction and deliver the peace of mind that comes from knowing that your life's achievement is in good hands.

Step 1: Choose your successor

Step 2: Develop a Formal Training Plan for Your Successor

Step 3: Establish a Timetable

Step 4: Prepare Yourself for Retirement

Step 5: Install Your Successor

Select the highlighted button to learn more about each step.

1.7    Preparing a Sales Agreement

No matter which option you choose, in order to sell your business officially, you need to prepare a sales agreement.

A sales agreement is key document in selling the business assets or stock of a corporation. It is important to make sure the agreement is accurate and contains all the terms of the purchase.

Items that should be addressed in your sales agreement include:

•      Names of the seller, buyer, and business
•      Background information
•      Assets being sold
•      Purchase price and Allocation of Assets
•      A non-compete clause or Covenant not to complete
•      Any adjustments to be made
•      The agreement and payment terms
•      List of inventory included in the sale
•      Any representation and warranties of the seller and buyer
•      Determination as to the access to any business information
•      Determination as to the running of the business prior to closing
•      Contingencies
•      Fees, including brokers fees
•      Date of closing

After you have collected this information you will need to meet with your attorney to develop the formal sales agreement. Having all of the information prior to sitting down with your attorney
will help you to manage the costs, but remember, this is a legal contract. You need to work with your attorney to make sure that the contract is complete and enforceable.

1.8    Steps to Closing a Business

You may decide that closing your business is the best option for you. This next section will outline a few suggested steps to follow when closing your business.

The first step to closing your business is to decide to close your business. Sole proprietors can decide by themselves that they should close up shop. Whereas if your business is a partnership, limited liability company (LLC), or a corporation you and your co-owners must make the decision to dissolve the entity according to the guidelines established in your articles of organization.

Remember to document the final decision with a written agreement.

1.9    Steps to Closing a Business

The second step to closing a business is to get expert advice. Closing a business is a delicate multi-step process. It is highly recommended that you enlist professional help. Expert advice
may come from lawyers, accountants, business brokers, auctioneers, tax experts, bankers, and the
IRS.

1.10  Steps to Closing a Business

The third step to closing a business is to file dissolution documents. If you fail to legally dissolve your LLC or corporation you will continue to be liable for taxes and filings. If your business is operating as a general partnership or sole proprietorship you may not be required to formally

dissolve your business, but it is still a good idea to notify the government and creditors of the change. If you are unsure if you should file dissolution papers, consult a small business attorney.

1.11  Steps to Closing a Business

The fourth step to closing a business is to cancel registrations, permits, licenses, and business names. To protect your finances and reputation, ensure that you cancel all licenses and permits that you will no longer need. If you have registered under an assumed, or trade name, other than your own name then you can cancel that business name registration with your local government.

1.12  Steps to Closing a Business

The fifth step to closing a business is to comply with employment and labor laws. Ensure that final paychecks are paid to employees by their last day of work, or soon after, according to your state laws. Your state may also require you to pay employees for their unused leave. The Worker Adjustment and Retraining Notification Act (WARN) protects workers, their families, and communities by requiring employers with 100 or more employees to provide at least 60 calendar days advance written notice of the closing. Depending on location, small businesses may need to comply with worker protection rules as well. Many states have enacted legislation similar to WARN requiring businesses with less than 100 employees to comply.

1.13  Steps to Closing a Business

The sixth step to closing a business is to resolve all financial obligations.

When you file income tax returns for the year in which your business closes, check the box that indicates the document is a final return. Many state revenue agencies require additional filings for sales tax.

If you have employees, you must obligate your payroll tax responsibilities or you will risk personal liability. Inform your federal and state tax agencies that your business is closing and that you will cease to file unemployment returns and an employer’s quarterly tax form.

You should also close your Employer Identification Number (EIN) account by contacting the IRS. The agency cannot cancel your account, but closing your EIN account notifies the IRS that you are not planning to use the number in the future.

For more information, the IRS provides a checklist of typical tax actions to take when closing a business, depending on your type of business structure.

The next step in resolving your financial obligations is to notify all lenders and creditors of your plans to dissolve the business and settle remaining debt. If you are unable to pay your debts, you may want to consider filing for bankruptcy.

Contact the business associates to whom you owe payment, or who owe payment to you. It’s a good idea to discuss with your accountant, attorney, and insurers to ensure that you have everything accounted for.

Finally, don’t forget to close out your business bank account and cancel your business credit cards.