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How to Sell a Business: The Closing
Typical closing documents:
- Asset Purchase Agreement – Generally 5-6 pages, this outlines your agreement with the buyer.
- Bill of Sale – This is the actual document that transfers possession at closing.
- Equipment List – This must be attached to the Bill of Sale.
- Buyer’s Disclosure Statement – This further reduces your liability post closing for any disclosures the buyer may not have made.
- Allocation of Purchase Price – This must be filed with the IRS at the end of the tax year. Failing to do so can expose you to large penalties.
- Non-Compete Agreement – This is a separate document and agreement signed by only you, typically notarized.
- Training Agreement – This agreement spells out your agreement with the buyer to train him/her. It is important to get the buyer to sign off on the training when it is complete so there are no disputes. If you fail to do so, then the buyer could potentially later refuse to make payments on your note, offsetting the note claiming you failed to train them properly.
- Holdback agreement for training – If it is an all-cash deal, then savvy buyers may request that not all money is released until the training is complete.
- Termination and transfer of DBA’s associated with business – If the buyer wishes to operate under the same trade name, then you must terminate your DBA/FBNS and transfer it to the buyer.
- Transfer of utilities – A clause should be contained within the purchase agreement to transfer the utilities in a timely manner. Failing to do so could leave you responsible for the utilities until they are transferred.
- Transfer of websites, phone numbers, etc. – Other assets of the business should be outlined and a clause should be contained in the purchase agreement whereby you agree to transfer these to the buyer at closing.
- Buyer forms new entity (Corporation, LLC, etc.) – Timing here is critical. We have seen deals delayed for up to two months because the buyer did not form their entity in a timely fashion.
- Buyer applies for licenses, permits, etc. – A list of permits and licenses must be made and the buyer must apply for these. Caution is recommended here as timing is important and must be coordinated with multiple other closing tasks.
- Transfer of merchant accounts – A buyer must be properly licensed and have bank accounts, etc., before applying for a new merchant account.
- Buyer must open a new bank account in the business name – Buyer must be properly licensed (DBA, business license, entity formed, etc.) to open a bank account in the business name.
- Notice to Creditors – A notice to creditors must be filed in 13 states in which this law is mandated. Failing to do so can leave you open to exposure for many years to potential third-party claims.
- Landlord/Lease Assignment Documents – If the lease is being transferred, this must be approved by the landlord in writing, and coordinated with closing. You dont want to transfer the lease until closing – timing here is critical.
- Financing Documents, if applicable – If third-party financing is involved, then there are mutliple other documents that often must be completed, such as business plans, projections, etc.
- Promissory Note – If seller financing is involved, then this should be put into an agreement and signed by the buyer.
- Security Agreement – If seller financing is involved, then it is wise to place a lien on the assets of the business until you are paid in full. Doing so will prevent the buyer from selling the business or further encumbering the business without your permission.
- UCC Financing Statement – If seller financing is involved and you are placing a lien on the assets of the business, then it is wise to file a notice (lien) with the appropriate filing office.
- Sales Tax Clearance – If your business collects sales tax, then you must get a clearance certificate for the buyer prior to closing. Failing to do so could expose the buyer to unpaid taxes.
- Payroll Tax Clearance – Another critical component. You will want to document that your payroll taxes are paid and current.
- Escrow Instructions – It is not wise to handle the money yourself. The funds should be held by an independent third party and placed into a licensed trust account.
- Closing Adjustments/Prorations – Multiple adjustments and prorations must often be made (lease payment(s), utilities, property taxes, accounts receivable, etc.).
- Transfer of any intellectual property – If your business owns any intellectual property, this property must be transferred to the buyer and documented (patents, copyrights, trademarks, etc.).
- Transfer of any third-party contracts – Yellow pages, advertising, equipment leases, etc.
- Corporate Resolution – If your business is a corporation or LLC, then proper document must be drafted, authorizing you to dispose of the corporate assets.
VERY IMPORTANT - The list above is in absolutely no way complete. It simply represents “typical” documents and steps required to close. All business closings should be handled by a licensed professional only. The above list is provided for illustrative purposes only.
Need help with the closing? Call us today at 888-693-7834 x-3 for assistance. Have a buyer? Unsure what to do? Need help with preparing a purchase agreement or the closing?
We can help you once you locate an interested buyer. We can also discuss your deal preliminarily and see if it is appropriate for you to prepare a purchase agreement or conduct further negotiations with the buyer.
Our rates for assisting you with your closing – We generally charge 1% of the purchase price and can even structure our fee so it is only paid in the event of a successful closing.