Structuring the Sale
Once you have located a buyer and reached agreed upon terms, its time to formulate all of those terms into a clearly drafted legal contract which itself captures the entire scope of the transaction. By creating a well drafted document, you can dramatically reduce the possibility of future legal disputes by eliminating ambiguous, incomplete and even contradictory understandings of the parties.
It is important that you, as the seller, prepare the original draft of the agreement because the party who prepares the original draft has considerable ability to shape the transaction and thereafter, if any quibbling needs to be done, it will be by the buyer, who may even hesitate to nitpick for fear of upsetting the deal.
In addition to the Purchase and Sale Agreement, there are other key legal documents used in the sale of a business. They include:
- If there will be installment payments to the seller following the close of escrow, you will need documentation that firmly commits the buyer to pay what is owed and protect the seller in the event the buyer discontinues making the required payments. These documents include a promissory note, security agreement, a financing statement and possibly a stock pledge agreement, one or more deeds of trust and personal guarantees.
- Documents for transferring ownership of the assets or the entity to the buyer. They include a bill of sale to transfer tangible personal property, assignment documentation for the transfer of leases, contracts and intellectual property such as copyrights, trademarks and patents. In the case of an entity sale, there will be formal documentation for the transfer of shares of stock or partnership or LLC membership interests.
- Non-competition and employment or independent contractor agreements to control your commitments to the buyer following the close of escrow.
- A comprehensive closing checklist to ensure a smooth closing
It is important that you employ the services of a qualified business lawyer to assist you in the preparation of the legal documents associated with the sale of your business and a tax advisor to ensure that the documents will comply with appropriate tax laws (particularly relating to the allocation of the sales prices among the various assets) and that the sale will have the tax consequences that you anticipate.
Quantum Business Solutions Network, Inc. is affiliated with a regional law firm that specializes in reviewing all client assets, including intangibles and Intellectual Property assets, advising clients with their exit-strategy planning and representing them in structuring business acquisitions, divestitures and buy-outs while minimizing the related tax consequences associated with each transaction. Since many of our Quantum business consultants are attorneys, we can work closely with our affiliated law firm to ensure a cohesive understanding of the transaction.
