Note: This post is the first in a twelve-week series called “All Set to Sell.” See our introduction video here. Even if the sale of your business seems far away, preparation for your business’ ultimate succession is invaluable.
As a business owner, you may have consulted with an attorney back when you first opened-up shop to help you form and organize your company. You may be working with attorney now for the purposes of general counsel or potential litigation. So, it may not be a surprise that it is important to find a reputable attorney who will assist you in selling your business, too. Your attorney can play several roles in a business transaction…
Reviewing organizational documents. Part of your business sale is to present up-to-date organizational documents and material agreements to the buyer, a job well suited for your attorney. For example, your attorney can assist you in drafting annual meeting minutes (namely, declarations and resolutions) for your corporation; these minutes state resolutions about the sale of the business in writing and are signed by your board of directors. Whether you are a corporation or an LLC, these formalities are necessary for being thorough in your business transaction.
Negotiating contract terms. Negotiating a business transaction is a lot like a serious dating relationship, as funny as that sounds. There are three phases:
- The “Dating” phase. In the “dating” phase of selling your business, exclusivity between you and the other party is established. When you first begin working with an attorney on the sale of your business, your attorney should prioritize a standard non-circumvention and non-disclosure agreement early on. Non-circumvention here means that, once both parties learn of the other party’s suppliers/clients, neither party can bypass the other party to get to those partners. Non-disclosure, similarly, is there to prevent either party from disclosing important information to parties outside of the business transaction itself.
- The “Engagement” phase. After establishing a protected exclusivity between parties, we enter the “engagement” phase of a business sale. This is the phase that I see business transactions regularly glossing over and under-emphasizing. The “engagement” phase should illustrate a level of earnestness and good-intentions between the parties; strategically, this means agreeing to as many terms as possible early on (i.e. Does the buyer agree to the purchase amount? Get it in writing). Moreover, this is the period of time when any of your confidential information can be handled securely. You and your attorney can take this time to work together to ensure that all agreements before the official purchase are memorialized and handled with care.
- The “Marriage.” Finally, there is the much-anticipated “marriage,” where both parties agree to and sign the Asset Purchase Agreement, which often happens shortly before closing. When “marriage” time comes, you will be happy you had that time to be engaged (but not quite committed) to your buyer, rather than jumping right to “eloping”! [Note: The document that acts as a contract for the sale of a company is often in the form of an Asset Purchase Agreement (though other types of contracts may be more suited for your goals, such as Stock Purchase Agreements or a Merger Agreement). Your attorney is able to review this document thoroughly and revise the contract as needed to meet the goals that you and the buyer have agreed to. The Asset Purchase Agreement is one of many documents that will finalize the sale of your business, including financing agreements, due diligence review, and any remaining ancillary documents.]
Preparing agreements for financing. Financing can be a very strategic move in a business transaction, especially if you are selling your business to a partner, friend, or key employee with whom you have a reputable relationship. Even if your business is going to a person you trust, your attorney’s counsel is very important when it comes to financing agreements in a business transaction. If seller financing (allowing your buyer to pay over time) is the route that you and the buyer have agreed to, then your attorney can be sure that your transaction protects both you and the buyer from future risk.
Reviewing due diligence. Due diligence is a list wherein the party requests certain documents and proofs of the business you are selling (this might include financial statements, inventory, liabilities, etc). You will be thankful for your attorney’s attention to detail when it comes to due diligence in your business transaction. Specifically, your attorney will do the heavy lifting of reaching out to necessary parties to obtain any necessary documents. I will talk more in-depth about due diligence in a future post.
Transferring intellectual property. Does your company own any copyrights or trademarks? If so, an attorney can be sure that those things are transferred to your buyer properly. Stay tuned for a future post, where I speak more in depth about what “intellectual property” means, particularly in a business transaction.
All along the way, your business transactional attorney can make certain that all documents are properly signed and dated, and that all exchanges (tangible and intangible) are memorialized.
Consider your attorney your “documents expert.” He/she is there to ensure that your business transactional documents meet your succession goals, protect you and your buyer from risk, comply with relevant statutes, and uphold a standard of professionalism and thoroughness as you move forward with selling your business.
Not sure how to go about selecting an attorney to help you with the sale of your company? Take a look at this article published by the American Bar Association, designed to help you select the right attorney.