How to Transfer Business Ownership

What Does It Mean to Transfer Business Ownership?

There are a several methods to transfer business ownership. The most common way is to sell the business to another person or company. A business can be transferred to another person, by sale the entire company or an a percentage of ownership interest. A business transfer is when you sell all or some of your business assets, which may include: business name, business equipment, and book of business.

At some point in their career, a small business owner may decide that it is time for them to transfer ownership of their company. Maybe the owner has decided that after many years working they would like to retire; they therefore would like to transfer ownership of the business to a relative they trust. Or, perhaps, the owner is thinking about bringing a partner onboard who will take over ownership of a part of the company. Some businesses, on the other hand, become such big successes that other companies or individuals come in with buyout offers.

Whatever the reason to transfer business ownership, transferring ownership of a company has many financial and legal consequences that all parties involved in the transfer should be aware of. Every business ownership transfer is a unique transaction. To help an interested business owner get started to transfer a business ownership please contact our Los Angeles small business lawyer to transfer business ownership.

5 Steps for Conducting a Business Ownership Transfer

1. Create a Team of Advisors

If a business owner is strongly considering transferring business ownership, then the first step he or she should take is to hire a team of professional advisors. He or she should make sure to hire an attorney and a financial advisor who can help figure out the best approach. The paperwork involved in a transfer can be complicated, so it is important to assemble a capable team of legal and financial professionals.

After bringing together this team, the professionals will offer advice on evaluating business debt. They can offer insight on the advantages and disadvantages of transferring business ownership, as well as how to ensure that assets are protected.

2. Get a Valuation of the Business

Prior to transferring ownership of the business, a business owner should strongly consider having an independent third party value his or her company. If the owner is planning to sell the business, then a legitimate valuation will help ensure that he or she receives a fair offer.

In fact, knowing the value of one’s company is helpful in a number of scenarios, regardless of whether or not the transfer goes through. It is important to know the value of one’s business in the following situations:

• Applying for a business loan
• Seeking investor funding
• Merging with another company

3. Review Shareholder/Member Agreements

If a company is not incorporated, then it operates as either a sole proprietorship or a general partnership. Thus, the business only exists if the business owner or any partners are actively participating in the company. After the company is incorporated, then the business becomes its own legal entity that may endure perpetually.

The process for corporations to transfer business ownership is much easier than it is for limited liability companies (LLCs). A corporation’s shareholder agreement offers clear guidelines regarding transferring shares to new owners. Conversely, LLCs are typically governed by an operating agreement, which details the many aspects of ownership. Prior to moving forward with transfer plans, a business owner should make sure that his or her governing documents offer enough flexibility for the transaction to take place.

4. Decide on the Structure of the Transfer

When it comes to transferring ownership of a company to another party, a business owner has a number of options to transfer business ownership. Often, the owner’s timeline is important, since retirement is a longer term goal than closing a sale within the year.

Also, selling shares will have tax implications for transferring ownership.

Regardless of how a business owner decides transfer business ownership, he or she should ensure that they understand everything in the documented agreement. The team of professional advisors should review the paperwork and offer financial and legal advice as necessary. If anything seems off, then it is ideal to handle it as soon as possible.

5. Inform Vendors, Suppliers, and Customers

If a business owner transfers business ownership to a new party, then he or she should inform vendors, suppliers, and customers of the change after the transaction is finished. It is a good idea to do this because contracts will need to be renewed or updated. Also, these groups will want to know who their new contact at the business will be.

Letting customers know of the business ownership transfer is a good idea because it gives the owner a chance to thank them for their business and prepare them for new leadership.

Conclusion

Every business ownership transfer is unique in its considerations and requirements. The steps one should take to transfer a business ownership will often depend on the business entity type and the transfer structure. With a team of professional advisors offering support, the process can proceed smoothly.