Business Transactions

At Arckey & Reha our practice extends to a broad range of business transactions, including sales of businesses.

Legal Issues Related to the Sale of a Business

Our firm's typical sale of business transaction involves a small, closely held business, where the owner or owners wish to retire or otherwise slow down, to disengage from the stress of the day to day pressures of running a business, to pass the business along to another generation of the family, or where the owner is simply presented with a great opportunity to sell at a profit., The sale of a closely held business presents issues that every business owner should understand as part of the sale of business process, which include:

Determining Price

Many times, the buyer and the seller of a business settle on a final price before the lawyers are brought in to provide advice. For parties seeking to negotiate price, there are some formulas, which are more or less accepted in some industries, while other industries have no "rules of thumb" whatsoever. Appraisers can offer assistance in determining price, and the owner may be aware of the price generated by other comparable businesses. In the end, what will drive price will be the buyer's interest in the purchase, the interest of the seller in selling, the financial performance of the business, the general health of the industry, and the value of the business' assets, both tangible and intangible.

Stock or Assets Decision

There are really only two types of sale transactions - those involving a sale of the stock of a company, and sales of the company's assets ("mergers" are typically a form of stock transaction). Usually, small business sales are conducted on an asset basis, primarily because a sale of assets will cut off many general creditor claims to the assets being sold (not always, but often). There may be overriding reasons to sell stock, however, such as a key relationship with a third party customer, vendor, franchisor, or regulator that may be easier to accommodate if the business itself remains within the same company, which will typically result when stock is sold instead of assets. The stock or asset decision will drive much of the transaction, since generally "everything" changes with an asset sale (there will be a new buyer of vendor goods and services, a new seller of the business' goods or services, a new tenant for a leased facility and a new employer for the employees), while none of these changes typically occur with a stock sale. Also, the parties to the transaction will be different with the business itself being the seller in an asset deal, while the owners of the business will be the sellers in a stock transaction.

Choosing a Financing Method

Some business sales are financed by institutional lenders, other businesses are sold on a cash basis, and some sales are accomplished through "owner-carry" financing. For the business owner who will finance all or part of the sale (a very common structure for the sale of a closely held business), the reality that the owner will be leaving closing as a "banker" presents a large number of additional issues that must be planned for and documented. In addition, since the seller will have a long-term vested interest in the business's continued financial viability (the owner of the seller may be counting on the buyer funding the owner's retirement, for instance), owner-carry financing presents unique challenges from a future business health perspective.

Real Estate Considerations

Often the sale of a business will also generate the sale of the building the business is housed in. At other times, consent of a third party landlord for a lease assignment will be necessary. In either case, proper planning, negotiation and documentation is a must.

Protecting Assets &Accommodating Change

Business owners need a clear understanding of what makes their business unique and valuable. Perhaps it's a reputation for service. Maybe it's a handful of key employees and the creativity they present. Perhaps it's a unique product or service. Determining the factors that lend value to the business will typically focus attention on those matters which necessitate focused protection. Likewise, since people are usually the key ingredient in many of the business' important relationships, issues such as key employee retention and future compensation will gain in importance. The point of sale is also a moment in a business' lifecycle which presents unique opportunities to protect assets, with such tools as effective competition restriction agreements, non-disclosure provisions and the like.

At Arckey & Reha, we can help the buyer or seller with a business analysis, the planning of a sale, and facilitation and proper documentation of the deal. John Reha is a noted authority in this area, and has been teaching the art of business acquisitions to CPAs nationwide for almost 20 years. John has a well-developed expertise in this area, and brings imagination, creativity and passion to the table to assist the buyer or seller of the closely held business.