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How to Transfer Business Ownership
April 23, 2019
Business-Ownership

How to Transfer Business Ownership

April 23, 2019
As a business owner, there may come a day when you decide to transfer ownership of your business. Perhaps you want to retire and want your business to endure under new leadership. Or, maybe you’re interested in recruiting a partner who will assume ownership of a portion of the company. Some businesses are so successful that others approach them with buyout offers.

No matter the impetus, transferring ownership has a multitude of legal and financial implications that should be considered before the transaction. While every ownership transfer is unique to the business and parties involved, we’ve compiled a list of steps that applies to most situations to help you develop your succession plan.

5 Steps for Transferring Business Ownership:

1. Assemble a Team of Advisors

If you’re considering ownership transfer, the first step is to hire the right team of advisors. At a minimum, you’ll want to find an attorney and accountant or financial advisor to help you determine the best approach given your circumstances. Since the paperwork and details associated with transferring ownership can be complex, working with the right legal and financial team will help ensure that you don’t miss any important steps in the process.

2. Get a Business Valuation

If you haven’t already done so, it’s a good idea to have your business valued by an independent third-party. If you’re selling any part of your business, a reliable valuation will help ensure that you receive a fair price in return. Whether or not the transaction ultimately takes place, knowing the value of your business can benefit you in a numerous situations for which you’ll want to be prepared.

3. Revisit Shareholder/Member Agreements

If your business isn’t incorporated, meaning you operate as a sole proprietorship or partnership, your business only exists if you and any partners you may have are actively engaged. Once you incorporate — for example, form a limited liability company (LLC) or corporation — your business becomes a separate legal entity with perpetual duration.

When it comes to transferring ownership, corporations typically make the process easier than LLCs do. The corporation’s shareholder agreement provides explicit guidelines for transferring shares to new owners. On the other hand, LLCs are usually governed by an operating agreement, which outlines the various aspects of ownership. Before moving forward with your succession plans, it’s critical to make sure that your governing documents provide enough flexibility for you to execute.

4. Determine the Structure of the Transfer

You have several options when it comes to transferring ownership to another party. Your timeline often plays a significant role in determining the best approach, since closing a sale within the year can look very different from planning for your eventual retirement.

In addition, the potential tax implications may also impact your decision, as selling shares of your business will have different considerations than transferring them. No matter how you decide to structure the transfer, you’ll want to make sure you understand everything in your documented agreement.

5. Notify Vendors, Suppliers, and Customers

Finally, if you’re completely exiting the business and transferring ownership to a new party, it’s a good idea to notify your vendors and suppliers (after the transaction is complete), as contracts will likely need to be amended or renewed. It’s also good practice to notify your customers, not only to thank them for their business but to also prepare them for any potential changes in store under new leadership.

Conclusion

Every ownership transfer has its own unique requirements and considerations. The type of business entity you’ve created, and the structure of the transfer ultimately determine the steps you’ll need to take to meet every requirement. With the right team of advisors and a clear succession plan in mind, you can put together your checklist to ensure the process executes smoothly.

Fora Financial

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

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Post by: Fora Financial
Fora Financial is a working capital provider to small business owners nationwide. In addition, the Fora Financial team provides educational information to the small business community through their blog, which covers topics such as business financing, marketing, technology, and much more. If you’d like to see a topic covered on the Fora Financial blog, or want to submit a guest post, please email us at [email protected].