What, Exactly, Is for Sale?
Although it may seem obvious, you should give some thought to exactly which of your assets will be sold with the company. You may have already removed unproductive or nonessential assets from the business in the course of getting it ready for sale. If not, consider doing so now. If you have assets that aren't needed to run the business, the buyer isn't likely to pay extra for them — you may be better off retaining these assets and selling them yourself.
There may be some valuable assets in the business that you want to keep, such as real estate or equipment that you want to lease to the buyer (or someone else). You may also be the owner of valuable patents, trademarks, or copyrights that you want to retain and license back to the buyer. This can become an important negotiation point. If you retain some of the assets, the purchase price will be lower, thus making the business more affordable to a larger group of buyers.
In particular, retaining real estate used in the business can provide you with a steady stream of rental payments for years to come. Particularly if you have a buyer who's tight on cash (such as your child or another young entrepreneur) you can keep the real estate for now, and perhaps sell it to your buyer at some point down the road.
Picking and choosing among the assets to be sold is easier if you aren't incorporated. In a sole proprietorship, you'll simply retain the assets you don't want to sell — you won't be taxed on any profits unless and until you eventually decide to sell them. Partnerships and LLCs can keep the unwanted assets and distribute them in kind to partners or members upon liquidation, although the individual partners may have to pay some tax upon what is technically a dissolution of their business. In a corporation, it becomes even more complicated and you may have to purchase the asset at fair market value, with the corporation paying tax on any capital gains inherent on the asset, if you want to remove the asset from the business entity. Consult your tax advisor for more details.
During the due diligence phase of the negotiations, the buyer will want to see a detailed listing of all the assets, their book value, and their fair market value. You'll be held to whatever list you provide, so make sure it's accurate to the best of your ability.
Two important issues relating to exactly what you are transferring in the sale are:
- Key contracts: are your important leases, supply contracts, and other agreements transferable to a buyer? Can a buyer assume your existing loans?
- Assets vs. stock sales: if you are incorporated, will you be selling the corporate stock, or its assets?
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