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What You Need to Know Transferring Business Ownership

Posted by Paul Volen in Resources

The decision to sell your company is only the first part of a multi-step process designed to transition over management to new leaders. It is important to think about this from a big picture perspective from the moment that you start having an inkling that you intend to sell your company.

This is because you will need to put numerous different pieces of the puzzle in place before you even list your company for sale and although it might seem like the transition could be far off from where you’re currently at, if you still haven’t even had a business valuation complete, the sooner you can think about the transfer as an important component of this overall strategy and start to put it into place, the better.

Ways to Transfer Business Ownership

Ownership can transfer to a new person or group in several different ways depending on whether or not a new person has joined the business, a partner, major shareholder or owner leaves, or if the business is being sold. When adding a partner, reflect back on the operating agreement to determine how new partners can be taken on and how much the new partners will have to pay for their ownership interests. The transaction can typically be executed through cash.

The Sale of a Business

Selling a private business is probably at the top of your mind if you landed on our website. In fact, Website Closers has extensive experience in helping business owners transfer the management of their company to a strategic buyer. There are two primary ways that you can sell a private business. The first is through cash or financing in which the buyer pays cash for the company through a loan or from personal resources.

A method used before transferring business ownership that is known as residual is used to determine money distribution for each asset and whether the gains are capital gains or ordinary income. The second method is known as installment sale or an owner financing sale. The buyer will pay for the business overtime on terms that are created by the seller. It is very common that the seller will need to use some form of mentorship during the financing period. This gives the seller an incentive to still be involved in the business and to structure an appropriate ownership transfer but can also be an important way to allow a buyer who could not otherwise afford to purchase the business based on cash to buy the company.

The seller undertakes the risk that the buyer could potentially default in the future and ultimately would have to forfeit the business back to the seller. Talking with an experienced business broker is your best opportunity to clarify the most important issues involved in deciding how to sell your company and how to transfer and manage ownership of your business. Schedule a consultation today with a business broker who is familiar with all of the different aspects of handling your company before preparing for transferring business ownership.