Factors for Selling Your Business
Selling your business is an attractive solution to wind down your operations and reap the benefits of your hard work. Here are three legal considerations when selling your business.
Contractual, Personal Liability
One consideration is personal liability. As previously discussed on SBL, you can protect yourself from some liability if you establish a legal entity and assets are maintained by the entity. There may be some situations where you may be personally liable even after you sell your business. For example, if you personally guaranteed a loan or executed a lease in your individual capacity, you may still be liable for these obligations even if the business is sold. This situation may be avoided if you ensure that your sale documents (such as an Asset Purchase Agreement) outline that your successor is liable for these items and they are assigned to your successor. Be careful, however, because agreements and obligations might not be assignable to a third party.
Legal Relationship with the Purchaser
Another consideration is to determine what your relationship will be with the purchaser going forward. Are you expecting to remain as an employee of the company? If so, any agreement between you and the purchaser should specifically outline the terms of the relationship. For example, are you expecting to only work hourly, have a commission, or equity? These details should be included in any sale documents.
If you are not going to remain with the company, you will have to consider whether it makes sense to execute a non-compete or non-competition agreement. If the purchaser is requiring a non-competition agreement, the parties will have to make sure that the terms are enforceable including the geographic scope and duration. You will also want to consider your plans for the future. If you are going to operate another, similar business then maybe executing a non-compete is not the best idea. Your ongoing relationship with the purchaser should be discussed with counsel when you are thinking about selling your business.
Liability to the Business Purchaser
Another consideration is liability to customers or the purchaser of your business. When someone is buying your business, there will generally be representations that you make in the course of the sale. It is imperative that the information you provide to prospective purchasers is accurate and truthful. While counsel can help you draft an Asset Purchase Agreement that limits liability, if you are making inaccurate statements you may be liable for fraud regardless of the language in any sale agreement. In addition to representations that are made, there may be liability to the business purchaser based on the language in the Asset Purchase Agreement.
While selling your business may suit your goals, it is imperative to make sure that the sale is done properly and with the assistance of legal counsel to ensure that your wishes are carried out after the sale is complete.