When structuring your business for sale, a designation must be made about whether your company will be structured and sold as an asset deleted or as a stock sale. This decision could be a complicated one because whichever is selected will be positive for one party but negative for the other. An asset sale is the sale of a company’s assets deleted; a stock sale is the sale of shares in a corporation. Tax issues and liabilities may complicate the designation and the sale.
An asset sale must be conducted for a sole proprietorship or a partnership because these business structures do not have stock. A limited liability company (LLC) can sell its membership units. If there are multiple owners, as in a partnership or LLC, one or more owners could elect to sell their partnership interests instead of the business’s assets. If, however, the business is a C corporation or an S corporation, there is a choice of selecting an asset or stock sale.
There are eight key considerations requiring careful thought as you reflect upon the sale process. A brief explanation on each will prepare you for a more thorough discussion with the different members of your professional exit team.
Transferability issues: Some of your company’s assets will transfer to the new owner easily, but some may not. Take a look at the contracts your company has with suppliers, employees, contractors, and confidential relationships. In some circumstances you may find that the legal relationship is strictly between you and the contracted party, and does not extend to your successor. Make a list of questionable contracts and share the documents with your attorney to determine your legal situation and what to do.
The Price is Going Down… Not Up: Once you set your sale price, the final price you receive is likely to only be less. It’s not very often that a buyer will be so impressed with the value of your business that he or she will voluntarily offer to pay more for it than you’ve asked; extremely rare, if ever! So once an interested buyer materializes and the path to the sales agreement begins, discoveries will be made or events will occur which will place a steady downward pressure on the value and price of your business.