In the life of almost any business there comes a time when its founder or owners want to sell. While there are a myriad of ways and combinations to effectuate the sale, some of the key driving factors include tax treatment, continued liability, type and nature of assets, divisibility, timing, financing, regulatory requirements and the particular parties involved. Business sales are generally asset sales, the sale of the real, personal, tangible and intangible assets of the business; stock sales, the sale of the ownership of the business; or some combination thereof.
In an asset sale, the seller conveys the assets of the business to the buyer and the business receives the proceeds. Sellers must be careful that the sale of assets does not violate banking, license, vendor or other obligations, and buyers should be sure they are acquiring assets free and clear of liens or claims by third parties. Buyers in asset sales often seek to buy assets in order to limit the potential liabilities that may exist for the business and its owners, and the sellers often retain liability for debts, exposure to pre-sale claims and potential tax consequences.
In stock sales, the seller conveys its evidence of ownership of the business to the buyer. Partnership interests, limited liability memberships, shares of stock, or other evidence and rights of ownership pass from buyer to seller. As the seller becomes the owner of all or part of the business that owns all of the assets, the business may remain liable for existing debts and obligations. Stock sellers should be cautious that all of the compensation is paid, or any deferred compensation properly secured, while buyers should be concerned that the assets are properly owned by the entity and that any liabilities are acceptable.
Many business sales end up being a combination of both, in that ownership of the business may be sold, but certain other assets sold separately. A business owner may hold the real estate in a separate entity from the business’ operational assets. The real estate holding company could be sold, as liabilities can be better predicted, while the buyer may want to buy the operational assets of the business. A combination sale often allows greater flexibility for the parties for financing, deferred payments, tax treatment and the overall transition.
Brooks, Tarulis & Tibble, LLC has substantial experience in assisting both buyers and sellers of businesses. If we can assist you in the purchase or sale of a business, your consideration of the purchase or sale of a business, or any questions you may have, please contact me.