How To Make a Change in Business Ownership
Making a change in business ownership is a lengthy and complex process, even for a simple business sale. You may be retiring or selling your business for another reason.
Once due diligence has been done by the buyer, and you have agreed on the terms of sale and the date of final change or transfer, the last part of the business ownership change process includes some important tasks. There is much to be done, and you don't want to miss anything.
This article assumes your business is not a public company that sells shares of stock to the public, but is a private company, with no shareholders. The process of changing ownership of a public company or a private company with shareholders is much more complicated.
Get the Help of an Attorney
As of the closing date, all of these tasks will need to be completed, except for the final dissolution of your old business. Of course, you will need an attorney to help with some of the legal documents. This list is general, so there may be some things that need to be done specifically for your business, but these are the major tasks that need to be done for any change of business ownership. You'll see why an attorney is necessary as you read through the number and complexity of the tasks involved in making a business ownership change.
What Happens to Your Former Business
The final dissolution of your business depends on what you want to do with it. If you are retiring or ending the business, you will need to notify your state business division and do a legal dissolution. If you are turning the business over to someone else, your business structure must be changed, and new owners admitted. Your corporate board of directors will need to create and approve several resolutions, taking you out of the ownership and adding the new owner or owners.
Business Documents for Business Transfer
In most cases, a change of business ownership involves the end of one business and the beginning of another. Several important business documents will need to be created for the new business.
The new owner will need a new Employer ID Number (EIN), which is given by the IRS. A new state EIN may also be needed.
Business documents filed with your state will need to be changed. The old business (corporation, partnership, or LLC) must be dissolved and a new business entity created with new owners.
You will need to wait to liquidate old business until after the sale is complete and everything is transferred to the new business.
Name Changes and Banking Changes
If the business name is to be changed, the buyer will have to get new signs and other marketing and advertising material.
Banking changes will need to be made. One of the first things the new business will need to do is set up a new business bank account to take care of transition payments and deposits.
Assets and Liabilities
After the new business entity has been created, assets and liabilities of the old business must be transferred to the new one. Assets should have been valued during the sales process, including intellectual property (patents and trademarks). There must be a paper trail showing these ownership transfers. For example, if the old business owned vehicles, the registrations and any loans against the vehicles must be transferred to the new business.
Current and long-term liabilities of the former business may or may not be transferred to the new business, depending on the sales agreement.
Changing Ongoing Transactions and Relationships
Usually, in a business ownership change, relationships with vendors and suppliers stay in place and are replaced or changed gradually. But all of these individuals and businesses must be notified of the ownership change. Any agreements between the former business and other businesses or individuals must be changed or canceled.
You will need to change the name on property leases and leases of equipment, computers, and autos. You and the buyer will need to talk to the property owner on a location lease. In some cases, the lessor may want a new lease with (of course) higher terms.
You will need to notify federal, state, and local government and regulatory entities about the end of one business, and the new business will need to register with these agencies. These changes include sales tax registration and local licenses and permits.
As part of the purchase agreement, there may be some transition issues that come up. For example, there may be projects or products in process of being created or delivered to clients. Who owns the revenue and expenses from these projects must be decided. These issues are usually addressed in the sales agreement between the two parties.
In addition, there may be taxes payable by the old business that may need to be determined later. Plan on having some transition issues spill over until after the closing date of the sale.
Employee and Payroll Information
Employee issues are tricky because you and the new owner want to make sure employee concerns are addressed. Payroll processes should be continued as seamlessly as possible. Make sure benefits like pensions and health insurance are transferred to the new ownership.
Details, Details, Details
This discussion gives you a general idea of the tasks you will need to take on when changing business ownership. From here, make a to-do list for each area and start working on it.