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Protect Assets

Richard Barrier

You’ve worked hard to build your business and now you’re ready to relax and enjoy the fruits of your efforts. Whether it’s selling an ice cream shop in Ely or entering into a merger transaction for your Fortune 500 company, the advice of legal counsel, accountants and other advisors may be necessary to complete the deal. Although the dollar amounts may vastly differ, both transactions require competent advice and planning to protect you from future liability.

First, know the value of your business. In light of today’s economy, the valuation multiples that were used three or six months ago are probably no longer applicable. Obtain an accurate idea by engaging a business appraiser.

Next, the buyer and seller should enter into a written purchase contract that reflects the key terms and conditions of the sale, including, but not limited to, detail of what assets are being purchased, the closing date and whether it may be extended, if there are any conditions to closing that may excuse the buyer’s obligation to close (such as obtaining financing), the purchase price, terms for the payment of the purchase price and the amount of any down payment.

If you elect to sell your business, have current financial statements available to provide to interested buyers. As the seller, you should also be prepared to make full disclosure of the assets and liabilities of the business. Liabilities include, but are not limited to, accounts payable, threatened or existing lawsuits against the business, unpaid taxes (including payroll, income and real property taxes), any EEOC, labor or union charges, and any liens filed against the assets of the business. Expect to be asked to make a representation that you’ve disclosed all liabilities of which you are aware. If the sale includes real property, also expect to make environmental representations.

To the extent a buyer agrees to purchase the business subject to certain liabilities, all such liabilities should be identified in detail and the buyer should agree in writing to assume those liabilities. This may be particularly important with respect to environmental issues whereby a buyer is willing to close the purchase and take the land subject to any environmental issues, waiving any rights against you as seller. Have an updated title policy available for any land that is part of the transaction.

With respect to any liabilities that are being assumed by a buyer, a buyer should agree to indemnify and hold harmless the seller with respect to those liabilities, and any costs and expenses incurred by the seller in defending against these liabilities if any actions are brought against the seller. Expenses should include attorney’s fees, court costs and fines incurred by the seller. Remember, an indemnity and hold harmless is only as valuable as the person who provides it.

If the purchase isn’t a cash deal or financed by a bank loan, you may be asked to accept a promissory note for a portion of the purchase price. If that’s the case, make certain that the promissory note is secured by the buyer’s assets or the assets acquired by the buyer in the sale.

Each transaction is different and this is only an introduction to the potential issues and risks that can be

associated with the sale of a business. To protect you against any future liabilities arising from the sale of your business, remember to engage experienced legal counsel and other advisors to preserve your rights and help direct the process.

Richard Barrier is a member of the Jones Vargas Transactional Group, focusing his practice on corporate law, real estate and business transactions. He has more than 25 years experience in the hospitality, gaming, leisure travel and trade show/event industries.