Now that you and your buyer have agreed to and signed the purchase agreement (read about it here), there’s only one more step to prepare for and accomplish – the actual closing of the sale.
If you and your buyer are in the same general location (i.e., the same or neighboring cities), as a rule we recommend closing in person, with you and the buyer, together with your attorneys, present.
However, if you and your buyer are far apart geographically, you may consider exchanging documents electronically. Every state has different legal requirements with regard to the sale of a business, so please do not sign anything until your Transition Advisory Team attorney(s) have reviewed all documentation, as well as your state’s requirements.
If you are closing in person, try to schedule this for the end of a month, quarter, or pay period – this can simplify what expenses transfer with the sale, and also the last-minute adjustments which will need to be made to the purchase price.
To prepare for closing, we recommend, as a general matter, that the following documentation be included, but be sure to work closely with your Transaction Team attorney(s) to ensure all state requirements are met:
- A statement of the final purchase price, showing prorated rent and utilities, final inventory value, final accounts receivable and payable, etc.
- Your signed purchase agreement.
- A bill of sale; if there are any tangible assets to be transferred but are not enumerated specifically in the purchase agreement, this is the place to specify their transfer.
- A closing or settlement statement, listing the purchase price itself, as well as costs and price adjustments. Have your Transaction Advisory Team attorney prepare this document.
- Your corporate documents. If your business is structured as a corporation or LLC, you will need to pass a corporate resolution authorizing the sale of the business, and this resolution will need to be included. If it is structured as a sole proprietorship, the business will close automatically once the sale is closed and you cease operations.
- Governmental and tax documentation: comply with all requirements of your Secretary of State or Corporations Commission. Some states require that a business being sold notify all creditors 10 days prior to the sale’s close. Prepare all appropriate transfers – e.g., DMV forms for vehicles, any documentation required to transfer intellectual property. Include your and your buyer’s IRS Forms 8594, showing the allocation of the purchase price (read more on that topic here).
- Succession agreements pertaining to employee benefit plans, which should include any flexible spending, profit sharing plans, etc.
- Confirmation of the business’ insurance requirements (these should be outlined in your purchase agreement).
- A list of equipment to be transferred. Identify any items held under lease. Also include a list of assets which are not being sold.
- Prepare transfers of contracts and agreements, such as vendor agreements or contracts, client engagement contracts, etc.
- List all work in process to be transferred.
- Finalized accounts receivable/payable schedule with aging reports.
- Loan documents, if the purchase price is to be paid over time, including promissory note, security agreements, personal guarantees from the buyer and, if appropriate, the buyer’s spouse and any third-party guarantor. Prepare a Uniform Commercial Code (UCC) financing statement to be filed with your state.
- Prepare the assignment and assignment acceptance documentation for the lease of your premises, if applicable.
- Personal agreements, such as any consulting or management agreement you have made to continue with the business temporarily.
- Any exceptions to the warranties and representations made in the purchase agreement.
- Any other documentation recommended by your Transaction Advisory Team.
At the close, if done in person, you and your buyer, together with your attorneys and financial advisors will give final, careful review of the documents, and, hopefully, agree to the terms and then, you can sign all documents.
After that, the deal is completed – but your job is not yet done, even if you have no agreement to assist the new owner via management or consultation.
You still have to announce the sale, file the appropriate documentation with the appropriate authorities, and take other steps to ensure that the sale has been made properly, legally, and is in compliance with all applicable laws and regulations.
Remember that selling a business is often a long process, but it’s worth being thorough, consulting your experts, and trusting them.
If you are considering any potential sale of your business, I recommend strongly that you consult with us before making any major decisions – and the sooner the better, as the process of selling a closely-held business can take six months to a year, and sometimes longer.
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Until next time –