As a business owner, you may have many reasons for selling your business. Regardless of your reasons, however, it is important to prepare your business as much as you can before the sales process begins. Thoughtful preparation may increase the purchase price and reduce issues that may arise during the sale that could derail the transaction. The process of preparing your business for sale is complex and involves many different considerations. This article addresses just some of the issues that you should consider prior to marketing your business for sale and how a knowledgeable business attorney can help you prepare your business for sale.
Getting Your Business Organization Documents in Order
If your business is a limited liability company or a corporation, you probably already have filed the required formation documents (e.g., articles of organization or articles of incorporation) with the secretary of state or other government authority. If not, now is the time to consider filing these important formation documents, which help shield both you and the buyer from personal liability. Even if you already have filed these formation documents, you should review your formation documents now to ensure they still accurately reflect your business structure. Similarly, most states require limited liability companies and corporations to file periodic reports (most often on an annual basis). Prior to selling your business, you will need to make sure that you have filed all required reports. If you have not filed these reports, your company may not be in good standing with your business’s jurisdiction, which could impact your ability to sell your business.
In addition to ensuring that your business has complied with state and other regulations, you should conduct a review of your other business documents, such as your operating agreement (if your business is a limited liability company) or your bylaws (if your business is a corporation). These documents govern the rules and structure of your organization. Often, after a time, businesses find that these documents no longer accurately reflect their business. If this happens to you, it is important to update these agreements as a potential buyer will want to see that your governing documents are accurate. Other important documents that you should review include shareholder agreements, sales agreements, client agreements, services agreements, and the like. A good business attorney can help you review these documents and, if necessary, update them.
Updating Your Employee Handbook
It is important for any employer to ensure that his or her employee handbooks are current. Employment laws frequently change; keeping your handbook up to date helps ensure that you maintain compliance with applicable laws, thus minimizing your exposure to potential lawsuits or government action. As you prepare to sell your business, you should take the time to have an attorney thoroughly review your employee handbooks to ensure that they both comply with applicable laws and accurately reflect your employer-employee relationships. If you do not have an employee handbook, you may want to consider putting one in place. Having a good employee handbook is attractive to a potential buyer as it signals that a seller has thoughtfully considered its relationships with and rules for its employees.
Consider Using Agreements to Define What Roles You and Your Key Employees Will Play During and After the Sale
Often, a seller and certain key employees may provide transition assistance to a buyer after closing on the sale of the business. For example, a seller, who is intimately familiar with the business’s operations, customers, and vendors, may provide consulting services for a time after the deal closes. Buyers find this transition assistance particularly attractive because it will increase their chances of successfully continuing the business. If you decide to offer transition assistance, it is important to have agreements in place defining the parameters of what assistance you and your key employees will provide and what compensation, if any, you and your employees will receive for providing these services.
Other Agreements to Consider
One of a purchaser’s biggest fears is that the seller will open a competing business next door. To assuage these fears and make your business more attractive to potential buyers, you may want to consider using a non-compete or non-solicitation agreement. These agreements limit a seller’s ability to compete with the buyer’s business or solicit the buyer’s customers. However, the use of these agreements is limited (and, in some jurisdictions, may be prohibited), so it is important to have a knowledgeable attorney carefully draft these agreements for you to ensure that they comply with applicable law. For key employees providing transition assistance, you may also consider using employment agreements to define their relationship with the company. Finally, the use of non-disclosure agreements may be warranted so that the buyer knows that the business’s proprietary information will be protected from disclosure.
Conclusion
Selling a business is a complex transaction. The more prepared you are before you put your business on the market, the more likely you will receive a fair price for your business and have a smooth transaction. Consulting a knowledgeable business attorney should be high on your priority list to help make your business as attractive as possible to potential buyers.
Should you have any questions about this article or selling your business in general, please feel free to contact Albee Law PC at (312) 279-0115 or by email at info@albeelaw.com.
