Selling a Business in Texas: What You Need to Know
Deciding to exit a business is a major undertaking. Ideally, you want to get out more than you put into the business.
But selling a business in Texas is not a one-day process.
It requires careful preparation and planning, not to mention an understanding of some basic legal concepts. Here are some of the questions we frequently get about selling a business in Texas.
What Is the Difference Between an “Asset” and an “Entity” Sale?
When you say you want to sell your business, you need to be more precise: Do you want to sell the corporate entity that contains your business or just the assets that make up the business? There is an essential difference between the two.
In an asset sale, Company A transfers certain property to Company B in exchange for consideration (i.e. cash). Company A otherwise remains intact as a legal entity. If you own Company A, that means you retain ownership of Company A–and all of its liabilities. This is a good deal for Company B, since it does not take on any of your existing debts, but it may not be the best option for you.
With an entity sale, in contrast, you no longer own Company A at all. You sell both the assets and the legal entity–that is, your shares or membership interest–to Company B. This lets you get rid of both of your assets and your liabilities.
How Much Is My Business Actually Worth?
It is often difficult to gauge how much your business is worth going into a potential sale. You can get some idea by looking into what similar businesses in your field have sold for in the past, assuming you can find such data. But a better method is to actually hire a business valuation expert who can review all of your records and give you a more qualified appraisal based on current market conditions. In turn, a professional appraisal will strengthen your bargaining position when dealing with a buyer who tries to lowball you.
What Records Do I Need to Sell My Business?
Many small business owners do not pay much attention to their corporate paperwork after their initial formation. But it is critical to get all of your essential documents in order before going into a sales negotiation. Especially if you are considering an entity sale, a buyer will need to see that your corporate filings are up-to-date. The last thing you want is to see a deal collapse because you forgot to file your annual report with the Texas Secretary of State, and your corporation is no longer in good legal standing.
How Should I Finance My Business Sale?
Some business sales are straight-up cash deals. But many times, the buyer will need to finance a sale over a certain period of time. The buyer may opt to have a third-party lender–i.e., a bank–finance the purchase. But you may also want to arrange financing yourself as the seller. If that is the case, you need to make sure there is proper documentation of the financing arrangement–typically through a promissory note–as well as some sort of collateral, which may be the very business assets you are selling.
What Happens With My Lease?
If your business leases its office, retail, or manufacturing space, you need to involve your landlord in any potential sale. You may be able to transfer your existing lease to the buyer. Otherwise, you may have to negotiate a sub-lease with the buyer as part of the sales contract.
What Is “Due Diligence”?
A business sale is not a handshake deal. Once you have identified a buyer, they will want to take time and inspect your business and its records. This is called performing “due diligence.” You will need to provide the buyer with detailed financial information and permit them to conduct physical inspections of your office and any assets involved in the sale. The buyer may also ask to speak with your existing customers, vendors, and business partners.
What Do I Need to Include in the Final Purchase Agreement?
A purchase agreement is the written contract detailing all of the relevant terms of the business sale. There will likely be other documentation involved–a bill of sale, a promissory note for financing, stock transfer certificates, et al.–but the agreement is your “roadmap” for the entire transaction. Among other items the purchase agreement should include the type of sale (asset or entity), the purchase price, each party’s obligations prior to closing, and of course, the actual closing date.
Do I Need to Speak With a Dallas Corporate Law Attorney?
The key to a successful business sale is seeking out expert advice from people who understand the intricacies of corporate transactions. Our qualified Dallas corporate law attorneys can help you plan, negotiate, and execute your business sale. Call Lindquist Wood Edwards at 214-427-1018 to speak with a lawyer today about your business situation.