Selling Your Business
Selling your Business
Are you thinking of selling your business as part of your retirement plan? Beyond determining the selling price you are willing to accept, there are quite a few legal issues that you need to consider and many steps to be taken by the lawyers for both you and the buyer.
Before you begin the sale process, think about what the business will look like to a potential buyer. Make sure all of your paperwork is up to date and your most recent financial records are in order.
The first issue that you will have to consider is whether you should sell the assets of the business or the shares of the corporation that runs the business. There are advantages and disadvantages for each of these models. Typically, you will want to sell shares in order to take advantage of the capital gains exemption, while a buyer will prefer to buy assets to limit its possible liabilities. Your accountant will advise you as to the advantages and disadvantages of each sale structure and what that will mean to the sale price you are seeking.
Once you have agreed with the buyer as to whether assets or shares are to be sold, the lawyer will often prepare an agreement called a “letter of intent”, setting out the fundamental terms of the transaction. These will include the type of purchase, an approximate list of assets or types of assets to be purchased and liabilities to be assumed, the purchase price, an approximate closing date and certain conditions of closing. The letter of intent will typically contain confidentiality provisions and rights of inspection of the physical assets of the business as well as the books and records, including the financial records,
of the business. Also, decisions will have to be made with respect to the employees.
Sometimes a buyer may not have the money to pay the whole purchase price at the time of closing the transaction. If you still want to complete the deal, you will want to ensure that you have proper documentation evidencing and securing the unpaid portion of the purchase price while the buyer pays you over a set period of time.
Regardless of whether you and the buyer agree to the sale of shares or assets, the parties will enter into a more extensive purchase agreement which will contain all of the terms and conditions of the transaction. The buyer’s lawyer will typically perform a variety of searches against your corporation and against you personally at that time to advise their client about potential risk and benefits.
Many supporting documents will also be required to complete the sale. Typically, the sale of a business will not be completed in less than 6 to 8 weeks. While very simple transactions may be completed in 3 to 4 weeks, complex transactions may take 2 to 3 months or more from initial discussions with the buyer to final closing. Legal costs will depend on the complexity of the transaction and the amount of work required to negotiate and prepare all of the required closing documents.
A lawyer can help you to understand the wide range of issues that arise with selling your business. If you would like advice or for more information regarding such matters please contact Chahal Priddle LLP at (250) 372-3233 to set up an appointment today.