I Am Considering Selling My Business; What Do I Need To Consider From A Legal Standpoint?
There are several things to consider and much of that is based on the type of entity that your business may fall under.
For starters is it a sole proprietorship, a partnership, a Limited Liability Company (LLC) or Limited Liability Partnership (LLP), a Corporation or a couple other forms that no longer exist? Have you talked to your accountant to consider tax implications? How are you valuing the price of the business? Are you selling the whole business or only a part of it? Are you selling the assets of the business or selling shares in the business? Do you have a partner or partners? Are you a professional organization (i.e lawyer, accountant, real estate firm, physician)?
There are alot of questions and I will try to touch on these to see if this can give you some direction. However, don’t use this article as legal counsel but talk to an attorney and your accountant. An error in what you are doing could leave you with unwanted debt and/ or liability and significant tax liability.
If it is a sole proprietorship or an old general partnership have you considered the value of the business and if so, how? There are professionals that will value your business but sometimes with a small business the Seller and Buyer can come up with an equitable price. Did you consider the goodwill that your business has? Consider how well your business is known throughout the community. If it is well known and you and your partners (if any) have built a name such that there is value. It is intangible, but it has value. What causes customer “A” to go across town past competitors to your business? That is value. Above all talk to an accountant before selling because you will most likely have tax issues such as with capital gains and items that have been depreciated. Do you have business owned real property? Such entities have pass through taxation so the taxes are all yours.
Now if you are a member of an LLC or LLP in addition to the above you will need to review your Articles of Organization and any Operating Agreement. You will need to see what is said about the sale of your organization and how it can be done. You must follow that directive. Officers will need to resign if they are Members and it will be required to file at least an Amendment with your County Probate Judge and the Alabama Secretary of State.
The Amendment has several requirements in the Code of Alabama and possibly you will need to follow the Code of Alabama directives if you are dissolving the LLC. Again, talk to your accountant about tax issues and your attorney about legal and liability issues. An LLC and an LLP both have pass through taxation as well so you will need to know what the tax liability will be and again you will need to review with your attorney the Operating Agreement since there may be debt or tax issues that will impact you. If you are an LLC or LLP that is a professional organization you cannot sell for instance your law practice to a businessman. While there has been some recent (in the last few years) changes where accountants and lawyers as an example may own a practice together, that is not typical and has to be approached in a certain manner beyond the scope of this article.
If your business is a corporation you must consider all of the above under your Article of Organization and Agreement. The Corporation can only be sold based on that document and must be followed strictly. Much of what has been mentioned under the sole proprietorship/ general partnership, LLC/ LLP is applicable for a corporation with the exception that the corporation is taxed separately as an entity and you and your partners (if any) may also have tax liability. Again, talk to your accountant about that. While an LLC/ LLP may also be for IRS purposes and “S” Corporation, a “C” Corporation may also file as an “S” Corporation so that may play a part in your tax considerations. Again there may be officer resignations, assumption of debt and there will be at least one required Amendment to your Articles of Incorporation to be filed with the County Probate Judge and the Alabama Secretary of State. If you are selling Shares then new Share Certificates will need to be issued to the buyer and the old certificates retired.
For the sale you will need to open your books and make them transparent to the seller(s). You should offer a good orientation of the business, after all success by the buyer assures a better sale. If you are under sixty or so years you should consider what you may be doing vocationally the rest of your life and whether there should be a non-compete Agreement for a certain time and a certain distance. Generally professionals are not held to a non compete because of a public need for such.
There are many questions to consider and I hope that you will talk to your attorney and your accountant as soon as possible.
This article is informative only and not meant to be all inclusive. Additionally this article does not serve as legal advice to the reader and does not constitute an attorney- client relationship. The reader should seek counsel from their attorney should any questions exist.
"No representation is made that the quality of legal services performed is greater than the quality of legal services performed by other lawyers."
Ronald A. Holtsford, Esq.
Ronald A. Holtsford, LLC
7956 Vaughn Road, Box #124
Montgomery, AL 36116