Completing an Asset Sale the Right Way

Running a business can be a rewarding experience, but at one point or another it will be time to sell it. People sell their businesses for a variety of reasons, including capitalizing on value, poor performance, retirement, and finding new opportunities. Handing over control of the business to a third party, internal management group, or a partner are all viable succession plans for many business owners. If you’ve come to the conclusion that you want to sell your business for any of these reasons, read up on how to successfully complete an asset sale.

What Is an Asset Sale?

Selling your business can be done in two ways: through an asset sale or through a share sale. The process of an asset sale includes selling assets—tangible or intangible—that your business owns. Tangible assets include inventory and equipment. Intangible assets include a trademark or the goodwill of your business. You can choose to sell certain assets and keep others, to a certain degree.

The Steps of an Asset Sale

The first step to selling your assets is locating a buyer. Once you have done this, you will likely agree to price and major terms surrounding the deal. When you’ve come to this informal agreement, it is time to conduct the sale in a formal manner. You want to make sure you follow all relevant regulations and sound advice when selling business assets. The major steps to completing the sale of your business assets are as follows:

Letter of intent: The buyer should draft and sign a letter that presents the price and terms to which you both have agreed. This letter is nonbinding and confidential. The letter shows evidence that both parties are serious and should allow the buyer to investigate your company through contacting your accountant, lawyer, and other relevant parties.

Due diligence: This is the investigative part of the asset sale. Both the seller and buyer have the opportunity to investigate one another’s operations. Your buyer should be given access to various records, reports, contracts, leases, facilities, and employees. You should also be investigating your buyer’s reputation, credit record, and plans for your business. This step exists to protect and satisfy both parties.

Financing: Financing is usually provided by the seller or a third party. Rarely will a buyer pay cash outright for the business.

Purchase agreement: If both parties are satisfied after the due diligence period, lawyers will then create a detailed purchase agreement. Typically, the buyer’s lawyer will make an initial draft, but it is important for your lawyer to draft sections that are pertinent to you and your interests. The purchase agreement will need to include the purchase price of your assets for tax purposes. Lawyers will also hash out financing or mortgages and any additional contracts.

Compliance with state law: Various state laws may need to be adhered to, including notifying the company’s creditors, requiring corporate stockholders to vote on the sale, protecting the rights of minority shareholders, accounting for transfer or sales taxes, both parties obtaining tax certificates, etc.

Finishing the deal: Upon agreeing to all details, both parties will move on to signing contracts regarding transferring ownership, security interests, promissory notes, and other documents third-party lenders may require. You will receive the buyer’s down payment, and the buyer will get possession of the sold assets.

An asset sale is a big step for any business owner. You will want to ensure all of the details are hashed out and that your interests are taken care of by your lawyers. Completing an asset sale should be a mutually beneficial process that leaves both parties satisfied. When you follow sound advice and conduct the sale in a proper manner, your assets can be sold successfully.

Legal Disclaimer

The content on our website is only meant to provide general information and is not legal advice. We make our best efforts to make sure the information is accurate, but we cannot guarantee it. Do not rely on the content as legal advice. For assistance with legal problems or for a legal inquiry please contact you attorney.