In this article I address the basic concerns of buyers and sellers, and the general structure of transactions available to accomplish a business transfer. For information on other issues and concerns in a business transfer, please see my article, Buying or Selling a Business in Maryland.

Buying or selling a business can be an exciting time but can turn into a nightmare if not planned correctly. There are many things to consider, including what structure the transaction will take. A list of typical structures include:

  • Asset Sale – the buyer purchases the business’s assets but not the company itself;
  • Stock Sale – instead of assets, the buyer purchases the seller’s corporate shares, LLC interests, or partnership interests;
  • Business Merger – the purchased company merges with an existing business;
  • Franchise Purchase – the buyer purchases the right to operate a business using the identity, property, or expertise of a franchisor.

The structure chosen by the buyer and seller of a business can sometimes rightfully ignore the intended result. For instance, a transaction whose ultimate purpose is to purchase the company assets can be structured as a business merger if a merger improves the tax or business consequences. Such a decision requires an attorney with tax and business knowledge.

The seller’s usual concerns are reducing taxes to be paid, obtaining relief from future liabilities, and ensuring any deferred payments are satisfied. Conversely, buyer concerns include acquiring the business or assets without interrupting the business, ensuring the seller’s claims about the business are truthful, obtaining relief from past or potential liabilities, ensuring the seller will not compete with his former business, and improving the business’s tax attributes, such as the tax basis of assets. Cautious business owners will not proceed through this process without the assistance of a business attorney addressing these concerns.

While the business sale documents address many concerns, there are additional necessary steps to accomplish a successful transition of company ownership.  In addition to the business sale documents, an attorney will often be needed to assign or negotiate the commercial leases, to amend the companies’ standard contracts with suppliers and customers, and to draft the many related agreements.

For further information, please contact Jeff Rogyom at (410)929-4578.