SELLING A BUSINESS
Business owners sell their businesses for many reasons, including: bankruptcy, retirement, cashing out, moving away or moving on to a bigger, better business or industry etc. California businesses can be sold by owner, by an attorney or by a real estate agent. This article focuses on selling a business with the help of a licensed real estate professional.
The two primary components of a business are the physical assets and financials. Physical assets could include buildings, equipment, inventory and supplies. Financials pertain to the sales and profitability: balance sheet (assets, liabilities, shareholders equity), income statement (revenue, expenses, profits/losses), tax returns and goodwill (brand, domain names, patents, trademarks, copyrights) etc.
When an experienced real estate broker helps sell a business, the seller can expect the business to be sold faster, for more money, and with less hassle. While the buyer has a responsibility to exercise “due diligence” in evaluating the business opportunity, the agent should advise the buyer to seek the advice of a competent accountant and attorney.
Typical transactions involve retail stores, automotive service businesses, restaurants, cocktail lounges, bakeries, manufacturing facilities, distribution and services businesses, etc. The sale almost always includes the inventory, fixtures, non-competition agreement, lease assignment, and goodwill. If real property is involved in the sale, the agent usually treats the sale of the business and sale of the real estate as two separate and concurrent transactions with two concurrent and contingent escrows.
In most business opportunity transactions, the real estate licensee will be acting as a dual agent, with the informed consent of the principals. Thus, the licensee is in a fiduciary relationship with both the buyer and seller.
It is estimated that about 75% of American businesses operate as sole proprietorships. About 16% are corporations. However, corporate enterprises earn over 70% of the total income.
The usual form of transfer for small businesses is a sale of assets for individual owners and a sale of assets or stock when a corporate owner is involved. (Transfer of partnership interests, corporate mergers, etc., are other examples of forms of sale.) Tax factors often influence the form of sale.
In a sale of assets, a buyer assumes no obligations of the business unless by specific agreement. The seller’s liabilities and creditors’ claims are generally cleared up in escrow. In a sale of stock, with the parties intending that the corporation remain the owner of the business with the same assets and liabilities as before the sale, the shareholders of the corporation sell and assign their stock to the new shareholders.
The use of an escrow holder specializing in business bulk transfers is advisable for all business opportunity transactions in California. The escrow holder: conducts lien searches; publishes, records, and mails to the tax collector the appropriate Notice(s) to Creditors of Bulk Transfer; obtains the designated tax releases from the government agencies who could otherwise impose successor tax liability upon the buyer; and acts as a general “clearing house” depository for funds, documents, instruments and delivery of same at close of escrow, at which time the escrow holder provides an accounting.
Buyers and sellers should consider the motives of the other party. Other factors to consider include: franchises; bulk sales; alcohol or other special licensed activities; consulting and training of buyer by seller; and no-compete agreements.
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Copyright © This free information provided courtesy L.A. Loft Blog with information provided by Corey Chambers, Realty Source Inc, DRE 01889449. We are not associated with the seller, homeowner’s association or developer. For more information, contact 213-880-9910 or visit LALoftBlog.com Licensed in California. All information provided is deemed reliable but is not guaranteed and should be independently verified. Properties subject to prior sale or rental. This is not a solicitation if buyer or seller is already under contract with another broker.