You have Buyer —— What Happens Next?
You have a Buyer to purchase your business and the terms of the purchase are in a written Purchase Sale Agreement.
For the sale of your business to be completed, escrow should be opened at a reputable escrow company. An escrow is an arrangement with a neutral third party called an Escrow Holder. The Escrow Holder typically holds documents and funds on behalf of a Buyer and Seller and distributes them at a specific time according to the Buyer and Seller’s instructions. An escrow account is a where the third party escrow holder holds money until all the details of a transaction are complete. An escrow account protects the Seller from not getting all of the compensation for the sale of the business because the money is not transferred until all conditions of the sale are met. The Buyer receives protection from fraud or an incomplete transfer of ownership.
The types of actions performed by the Escrow Holder depend on the type of sale and may include:
- Obtain signatures and receive the Buyer’s deposit(s) for the purchase
- Hold the Broker Agreement, the Purchase Sale Agreement, Counteroffers, and Addenda, leases for property, documents reflecting removal of conditions and other documents
- Prepare Escrow Instructions related to the transaction
- Notification to and clearance from taxing and other public agencies
- Publication of the Notice of Bulk Sale
- Orders searches for UCC liens, tax liens and Judgments
- Makes demands to existing lien holders to clear liens
- Receives claims for payment
- Requests made to the lender to fund loans
- Estimates the closing related costs
- Disburses funds and documents when transaction closes
Select the Type of Sale
A business sale can occur by a sale of all of the assets of the business or a sale of the entity that owns the business. It is important to talk to a tax adviser to determine which type of transaction is best for your specific situation.
Other issues to consider include the allocation of the purchase price. Typically, the Buyer and Seller have differing opinions about how they want the purchase price apportioned because of the resulting taxes consequences. The allocation considers:
- Good will
- Fixtures and equipment
- Leasehold improvements
- Covenant not to compete
- Furniture, Fixtures and Equipment
Closing the Sale
At the closing of the sale of the business, the final documents are signed by the Buyer and Seller. Then, the funds that have been held in escrow, the deposit(s) and balance of the purchase price, less expenses are released.
An Attorney Will Help you Protect Your Interests
A well-informed attorney can guide you through business sales and purchases including advise regarding the terms of the purchase and sale agreement, negotiation of the transaction, the escrow process and other issues that may arise during the transaction.
Lisa Wills of the Law Offices of Lisa D. Wills has the experience and knowledge to protect your rights when you sell or buy a business. Ms. Wills’ office is in Pleasanton, CA and she represents business owners in the Tri-Valley area including Livermore, Dublin, Fremont, San Ramon, Danville, Hayward and Castro Valley. For guidance regarding your business sale contact Lisa Wills, Law Offices of Lisa D. Wills at (925) 463-9000 or send an email.