Business Sale or Purchase

The sale of a small business is often the largest transaction of the owner’s life, and in a small community it is frequently a sale to an employee, a family member or a neighbor. Elkhorn Law represents buyers and sellers of Estes Valley businesses (e.g., restaurants, lodging, contractors and retail shops) from the first letter of intent through closing.

Asset Sale or Sale of the Company

The first decision is what is being sold. In an asset sale, the buyer purchases the business’s equipment, inventory, name, customer lists and other assets, and usually forms a new company to hold them; the seller’s company keeps its own liabilities. In a sale of the ownership interest (i.e., the membership interest in an LLC or the stock of a corporation), the buyer steps into the existing company, liabilities and all. Buyers generally prefer asset sales and sellers generally prefer selling the company, and the choice has tax consequences on both sides which should be reviewed with a CPA.

The Usual Documents

Letter of intent. A short summary of the price and major terms, mostly non-binding, which lets the parties confirm they agree before paying for a full agreement.
Purchase agreement. The asset purchase agreement or interest purchase agreement, including the price and how it is allocated, the seller’s representations about the business, the buyer’s due diligence period and the conditions to closing.
Seller financing. Where the seller carries part of the price, a promissory note and a security agreement (or deed of trust) which protect the seller if the buyer stops paying.
Closing documents. Bills of sale, assignments of the lease, licenses and contracts, and any resolutions the company needs to approve the sale.

Points Which Often Decide the Deal

Many small business sales turn on the lease, since a restaurant or shop without a transferable lease may be worth little; the landlord’s consent should be addressed early. Colorado sharply limits noncompetition agreements, but permits them in connection with the sale of a business, so a buyer who wants the seller to stay out of the market should say so in the purchase agreement. Licenses (e.g., liquor licenses and short-term rental licenses) often do not transfer automatically and may require a new application by the buyer.

Elkhorn Law can represent either the buyer or the seller, or, with the informed written consent of both, both parties to the transaction. A joint representation often suits a sale to an employee or family member, where the parties have already agreed on the terms and want one attorney to document the deal; before asking for consent, we explain what each party gives up by sharing counsel. If you are planning to sell in the next few years, see also Business Formation for the governing documents that a buyer will review, and Business Dissolution for winding up the selling company after an asset sale.

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