Buy, Sell, Merge or Close a Business

If you are starting a business from the “ground up”, be prepared to experience the volatility and stress that most startups experience. If you have an entrepreneurial spirit and you’re prepared for the challenges ahead of you, then starting a new business may be worth your time and effort. Successful business owners have the option of running their company for as long as they wish, selling the company and moving on, or even starting companies and franchising.

You can also explore buying a business that is already operational. Either option has merit, but both come with potential risks. You can reduce risk and increase your chances of success with the help of an experienced business lawyer.

Selling your business

Potential purchasers of your business will look at the substance and quality of your business as a going concern. Some buyers want to see a track record of success as well as a clear indication that the business is growing or has the opportunity for growth. A healthy, properly operated and well documented business will yield higher valuations. Some buyers, on the other hand, want to purchase businesses that are faltering but have an opportunity for success. These types of transactions will not net the same value as a well-run growth-oriented business.

When you consider selling a business, talk to an experienced business attorney. Business sales involve many aspects beyond the business operations. Debts, liabilities, inventory, contract assignments, customer lists, intellectual property and so much more must be considered and carefully outlined in a purchase and sale agreement.

Buying a business

Buying a business involves many of the same considerations as selling a business. With a business lawyer advising you, you can dig into the details of the business you are considering for purchase, looking at contracts, vendors and suppliers, the history of the business and its operations, licenses, taxes paid (or due), debts paid (or due) and a host of other issues you will be buying. When you buy a business, you buy a lot of legal obligations which can include contracts, lease agreements, employer obligations, regulatory obligations and more. Some business purchases come with debts and liabilities that might not be known or obvious at the time of purchase, but might come to light after the business purchase is made. Will you require warranties and indemnifications? Will you pay for the business upfront, or crate a payout that reserves money for liabilities that were not disclosed? Are you prepared to pay more for those protections?

Closing a business

If your business is not saleable due to poor operations or financial troubles, you might consider closing the business. Closing a business is not always as easy as cleaning out the shop and walking away. Debts and taxes need to be paid. Employees need to be notified and final payments made. Contracts with suppliers, vendors, landlords and others need to be terminated. And if you are a business entity with other owners, meetings should be held to discuss and vote on the right way to close shop. Here is a short overview of some important steps to consider when closing your business:

  • Meeting with co-owners to close: If you are in business with other partners, members or shareholders, everyone should be aware of the plans to closing the business.
  • Dissolve: Once your business is dissolved (closed), you no longer operate as a functioning entity. With no revenue coming in, you will no longer incur tax liabilities. However, any past tax debts due and owing and the sales of any assets (personal, real or intellectual property) may give rise to tax liabilities.
  • Terminate contracts and other legal documents: Once the business is dissolved, make sure everyone knows that the business is no longer operating as a business. Cancel or terminate permits, fictitious business names and licenses to avoid incurring additional liabilities.
  • Pay taxes and debts: Pay any taxes due and owing and taxes that result from your dissolution. Don’t risk your personal assets by paying taxes late or not paying them at all. Make sure all necessary reports are filed with local, state and federal governments. Make sure you address and pay final wages, commissions and bonuses due and owing.

Closing a business is not always a bad thing, but it comes with significant risk if the business is not closed and wrapped up properly. With any business transaction (purchase, sale or closure), a business attorney can advise you of the risks and opportunities you might face and can help you document the transactions, create the right contracts and negotiate the best terms for you.