Sacramento Business Attorneys
Our Sacramento business attorneys are experienced in advising clients on the business implications of buying or selling a business. This allows clients to make their decisions with full knowledge of the business and legal consequences. Nothing can hurt a business sale more than uninformed or un-examined decisions—our Sacramento business attorneys work with our clients to prevent this problem from ever coming up.
If you’re contemplating selling your business, you should try to become familiar with the various laws that could come into play. Some laws may affect how you structure a transaction. You’ll want to meet with your lawyer early on so that you can structure the deal to your best advantage within the law. Other laws will simply provide requirements that you need to comply with. Your StoneCrest Law Firm Sacramento business attorney can explain your obligations under these laws as well.
Tax Issues
Federal tax laws are most likely to affect how you structure your transaction. The amount of federal taxes paid by both the buyer and the seller will be affected by how the deal is arranged. Both parties will want to minimize the amount of taxes paid. The buyer minimizes taxes via depreciation of assets and deductible expenses. The seller minimizes taxes by trying to take advantage of capital gains tax treatment. The structure of your business as a sole-proprietorship, partnership or corporation affects how you will be taxed as well. Federal tax laws that apply to the sale of a business are complex and you should seek the advice of a lawyer and CPA with experience in this area. Otherwise you might pay more taxes than you would have with better planning.
State tax laws are likely to apply to the sale of your business as well. This applies not only to income tax, but to gross receipts taxes and property taxes also. Your state may tax the transfer of your business or your inventory. You will also probably have to settle any current tax bills or at least address who will be responsible for them in your purchase agreement.
Bulk Sales Act
If you will be selling the bulk of your business inventory, you will need to comply with the Bulk Sales Act if your state has one. This act requires you to give notice to creditors in advance of the sale of most of your inventory. The purpose of this act is to give notice to creditors who may have given credit to you based on your inventory. After all, that inventory soon won’t belong to you, but you may still owe them money. Or if the purchaser is assuming your debts, this gives the creditors notice that someone else will be responsible. It simply gives your creditors the opportunity to protect their investment.
Your Sacramento business attorney can let you know if your state has a Bulk Sales Act and if so, what you need to do to comply. He or she can also let you know of any other laws you will need to follow and help guide you through the legal requirements.
Letter of Intent
When you’ve located a serious buyer for your business, the first step to continuing negotiations is the letter of intent. This article outlines some of the things that should be covered in a letter of intent, what a letter of intent is, and what it can be used for.
A letter of intent is exactly what it says it is: It is a letter in which the buyer states his or her intentions to pursue negotiations to purchase your business. A letter of intent outlines the general terms of the deal; the specifics are subject to further negotiation. It doesn’t mean that the sale will definitely go through with this particular buyer. It does mean that both the buyer and seller intend to move forward with good faith negotiations toward the ultimate purchase of the business.
The letter of intent serves as an indication to third parties that you and the buyer are in serious negotiations. If the buyer will be borrowing money in order to purchase your business, this letter lets potential lenders know that this deal has a good chance of completion. Any lender will have its own requirements for making sure that a business is worth the amount they are putting up for a loan. But a lender doesn’t want to check out every business that the seller might buy. They want to make sure that there is a real possibility of the deal going through first. The letter of intent lets them do that.
As a seller, once you have a letter of intent, it is time to start getting down to the serious details of your business with the buyer. This may mean that you will be disclosing confidential information to the buyer. Because of this, you will want the letter of intent to have a confidentiality and non-disclosure clause. This means that the buyer will promise to keep the confidential information that he or she learns as you go forward with negotiations secret and not disclose it to any unnecessary third parties. You may want it to address specifically who may have access to the confidential information. For example, the buyer may need to disclose confidential information to his or her broker or attorney.
The letter of intent may contain an acceptance paragraph where you, as the seller, indicate your intention to pursue good faith negotiations with this particular buyer. You may also state that you will not continue to consider or negotiate with other buyers while you are negotiating with the current buyer. You will also give your permission for the potential buyer to contact certain people, such as your banker or your accountant, about your business.
Finally, a letter of intent should specify a time frame for the completion of the deal. This will keep negotiations moving. If the buyer is dragging his or her feet, you can remind them of the deadline. If negotiations are progressing, but you won’t meet the deadline, you can always agree to extend it.
Even if you don’t have a Sacramento business lawyer involved in negotiations for selling your business, by this time you should have hired a lawyer who will assist with completing the sale. Your Sacramento business lawyer can go over the letter of intent with you, if necessary.
Due Diligence
Due diligence is the process by which a potential buyer checks out everything about your business to find out as much as possible about what he or she is getting into before the deal is closed. You will need to give the buyer access to a wide range of information. If you are aware of problems with your business, you need to disclose them. This will protect you from a lawsuit for fraud, if the buyer discovers the problem after the purchase is complete. It is also preferable to having the buyer discover the problem before the deal is closed. If that happens, the buyer will wonder what else you may be hiding and it could kill the deal.
What Types of Information Will the Purchaser Want?
The answer is “just about everything”. The buyer will probably want to see your operation first hand. He or she will also want to go over a lot of documents. These include business licenses, insurance policies, leases, employment agreements, employee benefits, financial reports, customer lists, and just about any other report or record that exists. In addition to documents, the purchaser will want you to provide information about any pending or threatened lawsuits, any insurance claims that have been filed, any tax problems or audits, and any other potential liability of which you are aware.
If you are aware of any potential problems that will not show up on the documents and records you provide, it is probably best to disclose those as well. For example, if you know you will need to upgrade a significant portion of your equipment in order to keep pace with competitors, you should disclose this information. You don’t have to describe the worst-case scenario, just give the facts so that you can show that you disclosed what you knew may negatively impact the business. You can also present possible solutions to any potential problems.
You want the new business owner to continue the success of the business. You may be counting on continuing payments from the new owner if it is an installment sale. You also might become a consultant to or employee of the business after the sale. This will provide you with continuing income – if the business continues to make money. The chances of this are greater if the buyer doesn’t get any nasty surprises after the sale is closed. Finally, you want to be sure that the new owner will be able to pay any of your business debts that he or she assumes as part of the deal. Otherwise you may find that you are still liable for them.
Sacramento Business Consulting and Transactions Attorneys
The Sacramento business attorneys at StoneCrest Law Firm provide a wide range of transactional and consulting services for their business clients of all sizes. We represent entreprenauers, commercial property owners, contractors, developers, retailers, professionals, and other service providers.
We consult and provide services on matters from drafting a simple employment contract to forming a business. In everything we do, we are responsive to clients’ needs and understand that each business is unique. We offer comprehensive business transaction services, including: contract negotiations, LLC and other business entity formation, purchase contracts, sales of existing businesses, employment contracts, independent contract agreements, confidentiality and non-compete agreements, small business formation.
Business and Contract Consulting Services
Our business consulting takes many forms. Our contract review services, which provide an analysis of the costs and benefits of any type of proposed or pre-existing contract, are often completed under strict time constraints. We also assist with the development of employee forms and advise clients on copyright and trademark registration and ownership. In everything we do, our goal is to identify the best practices for our clients’ business and help them structure the operation to avoid litigation.
Contact a business consulting and transaction lawyer at StoneCrest Law Firm. We understand business.
We are experienced Sacramento Business Attorneys. We have helped many individuals and companies with their business planning and incorporation needs. Our Sacramento business attorneys offer affordable business formation and business incorporation packages and great advice and strategy regarding business law, asset protection, buying or selling a business, business disputes, contract drafting, and annual corporate requirements. Our business attorneys can help you protect your personal assets and give you the great legal advice and strategy needed to get you the results you want. Contact us today to schedule your complimentary attorney consultation by clicking HERE or by calling 916-999-1376. We look forward to helping you with all of your Sacramento business law needs.
