Do You Need an Attorney When Selling a California Business?
This is a question people will often ask as a business broker. After all, if you already have a Certified Business Broker and an accountant, do you really need an attorney, too? I mean, aren’t all the contracts pretty standard.
Besides, don’t attorney’s just cost extra, and can they mess up a deal? After all, they think differently than many business people.
The answer, unfortunately, is a little more complex than that.
An Attorney Knows the Ins and Outs of Contract Law
First of all, as a business owner, you are probably aware that contract law, especially in California, can be tricky at best. Even the terms and conditions you agree to with your cell phone provider are more complex than most people can comprehend. While we hit “approve” on those almost without thought, selling your business is a much bigger deal.
Think about it. Selling your business is perhaps the most significant financial event you will have in your life, and it is for most business owners. You want to make sure everything is done correctly in every area possible, and while a business broker may know the law, a contract attorney should be part of your team to double-check any contract before you sign.
Taxes and Liability
One of the biggest areas of dispute between buyers and sellers and a frequent deal killer is the issue of taxes and liability. Both parties want little or no tax liability, especially sellers, as they are looking to exit their business, and often retire and leave business life behind.
Sellers want the maximum profit as quickly as possible, and in the most common type of sale, an asset sale, they want to be able to depreciate the assets they purchase and have as low tax liability as they can from the start.
Often an attorney is your best resource here. They can show how other deals are structured and help come up with a solution that works for everyone involved. Just understand as a seller that the buyer will also have an attorney of their own and that often a compromise will be necessary.
That Pesky Landlord
Another common issue is the negotiation of your lease to allow a takeover by a new buyer, and therefore a new tenant. Often a landlord might see a transfer of ownership as an opportunity to renegotiate lease terms, and even raise the rent.
This can turn into a deal-breaker, and so it is often best to negotiate your lease before you even put your business up for sale. An attorney can look at your lease closely and help you determine what terms are a must-have for a buyer. This can also show your landlord you are serious, and help leverage your position.
Understand that if your landlord is unwilling to negotiate with you ahead of time, you need to let the buyer know early on. That way this doesn’t turn into a deal-breaker later on.
Licensing and Other Concerns
Let’s say you’re selling a medical practice in California, and a doctor or medical group from Texas is interested in purchasing it. Just because that doctor is licensed in Texas does not mean they will meet the qualifications for licensing and operating a medical practice in California. They will need to contact the California Medical Licensing Board to determine their next steps.
But the same is true for other businesses. Contractors must be licensed as well, and there are often local and regional requirements. Your business broker will be aware of many of these, but an attorney can often clear up legal matters like how long a new owner has to become licensed after the purchase, what requirements they have to meet, and they can even help with background and credit checks that might be part of the process.
Remember, as important as it is for your buyer to perform due diligence, it is just as important that you vet your buyer.
There are other important factors an attorney can help with, like determining the way the sale should be structured and other factors. There are a lot of legal intricacies to selling a California business. If your business broker and your attorney work together, they can assure a smooth sale process and hand-off to the new owner. But there is another unique process to consider in California.
Escrow and Closing
In California, for the sale of most businesses, escrow is a requirement. This complicates the process slightly, but between an attorney and your business broker, you can make this part of the process go smoothly.
This final closing is when you will sign the final paperwork that transfers ownership of your business and the money from the buyer to you. By this point, you should feel secure that all paperwork has been filed properly, and that the deal has been completed to your satisfaction, and in a legal way.
The Cons of Hiring an Attorney
Are there cons to hiring an attorney? There can be, and that is why recommendations from your business broker and other business owners are so important. Here are some potential cons.
- An attorney may want zero liability for anyone, which can be an impossible task and a deal killer.
- You want an attorney to fight for you, but there will be some areas where you need to give.
- You and your broker must operate 100% legally. This is not a bad thing, but it is something to be aware of. That means no hiding assets or other “tricks” to avoid taxes without legal loopholes.
- Attorneys can take up a lot of time and taking too much time to finalize a deal will often kill it. Be sure your attorney understands urgency and responds in a timely manner.
At Rogerson Business Services, we pride ourselves on integrity and honesty. We deal with every buyer and seller in exactly the same way. We highly recommend having an attorney involved in any transfer of business ownership.
Are you ready to sell your California based business? Check out the industries we specialize in here. We want to be your business broker, and we can get started with a business valuation right away. Contact us today for more information.