This is a question people will often ask me, as a California Based Business Broker: Do I need an Attorney When Selling a Business in California? After all, if you already have a Certified Business Broker and an accountant, do you need an attorney, too? I mean, aren’t all the contracts pretty standard?
Besides, don’t attorneys just cost extra, and can they mess up a deal? After all, they think differently from 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 ensure everything is done correctly in every area possible, and therefore, a contract attorney should be part of your team to double-check any contract before you sign.
Taxes and Liability
One of the most significant areas of dispute between buyers and sellers and a frequent deal killer is the issue of taxes and liability. Both parties want little to no tax liability, especially sellers, as they are looking to exit their business and often retire, leaving business life behind.
Sellers want to maximize their profit as quickly as possible. In the most common type of sale, an asset sale, they aim to be able to depreciate the assets they purchase and have as low a tax liability as possible from the outset.
Often, an attorney is your best resource in this situation. They can demonstrate how other deals are structured and help devise a solution that works for everyone involved. Please understand that, as a seller, the buyer will also have their attorney, and that often a compromise will be necessary.
That Pesky Landlord
Another common issue is negotiating your lease to allow for a takeover by a new buyer, thereby creating a new tenant. Often, a landlord may view a transfer of ownership as an opportunity to renegotiate lease terms and potentially raise the rent.
This can become a deal-breaker; therefore, it is often best to negotiate your lease before even putting 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 demonstrate to your landlord that you are serious and help strengthen your position.
Understand that if your landlord is unwilling to negotiate with you in advance, you should inform the buyer promptly. 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 also hold a license, and there are often local and regional requirements. Your business broker will likely be aware of many of these details, but an attorney can often provide further clarification on legal matters. One of these is the timeframe for obtaining a license after purchase, including the specific requirements that must be met, as well as assistance with background and credit checks that may be part of the process.
Remember, as important as it is for your buyer to perform due diligence, it is just as crucial that you vet your buyer.
There are other essential factors that an attorney can help with, such as determining the best way to structure the sale and other relevant considerations. There are numerous legal intricacies in selling a California business. If your business broker and attorney work together, they can ensure a smooth sale process and a seamless handoff to the new owner. But there is another unique process to consider in California.
Escrow and Closing
In California, escrow is a requirement for the sale of most businesses. This complicates the process slightly, but with the assistance of 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 correctly 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 the urgency and responds promptly.
At Rogerson Business Services, we take pride in our integrity and honesty. We treat every buyer and seller with equal respect. We strongly recommend involving an attorney in any business ownership transfer.
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 start with a business valuation right away. Contact us today for more information.