As a North Carolina business owner, you probably realize that there will be multiple opportunities along your company’s lifecycle where you might consider selling. If that time has arrived, you may also be realizing the massive number of legal issues you need to address before embarking on such a transaction. You must juggle several priorities, including your own personal interests, the longevity of your business, and your family’s future. At the same time, you have certain duties and good faith obligations to a potential buyer. To maximize the financial outcome, your approach to selling your business requires a considerable amount of advance planning.
One of the first steps in the process should be retaining legal counsel to guide you through the key components of the sales transaction, particularly the important tasks to undertake beforehand. Though the specifics may vary according to your needs, you can trust your North Carolina business law attorney to assist with:
- Determining the right sales transaction structure: In general, there are two ways to structure the transaction for selling your business, though the arrangement may incorporate some aspects of both. The Journal of Accountancy provides a helpful explanation:
- A stock acquisition, in which the acquiring entity obtains ownership of the outstanding stock of the target corporation, LLC, or other company; OR,
- An asset acquisition, where the buyer is purchasing the assets of the business.
- Conducting business valuation. You will certainly need to open the books when discussing terms with a potential buyer, but you must also go through business valuation to figure out the right price to ask. Your lawyer and financial advisers can help you determine the most appropriate business valuation method, such as:
- The market approach, which focuses on the value of similarly situated businesses that have been bought and sold;
- The discounted cash flow method, which assesses your company’s future cash flow based upon its current financial position.
- Review third-party contracts and business relationships. There is a good chance that your company is a party to various agreements, so you must go through all existing written contracts and relationships with partners. Regardless of whether your company drafted the agreement, successors to your business – including a buyer – may be on the hook for continued performance.
- Addressing intangible assets. The business valuation method you chose will account for all assets, but some certain types of property require additional attention. Examples include:
- Intellectual property;
- Copyrighted information;
- Trade dress and trade secrets;
- Professional or business licenses; and,
- Many others.
There can be challenges in dealing with these assets, especially since a buyer will likely demand restrictive covenants to protect its interests going forward. Because North Carolina law requires noncompete and nondisclosure contracts to be in writing, the sales agreement for your business must include the proper language. If you will be staying on with your company during the transition or for some time thereafter, you need to understand your obligation to avoid inappropriate competition.
Consult with a North Carolina Business Law Attorney About Legal Issues
This overview on what to do before putting your business up for sale may provide you with insight on the basics, but there are many other details and legal subtleties involved with these transactions. As such, it is wise to count on our team at Mullen Holland & Cooper P.A. to assist with planning, negotiations, and drafting the essential documents. To learn more about our legal services for business owners in Western North Carolina and Upstate South Carolina, please call 704.864.6751 or visit our website. We can schedule a consultation to review your circumstances at our offices in Gastonia, NC.