Business Law for People in Business: The Sale of a Business by pellcity27


									                            Business Law for People in Business
                                  The Sale of a Business

The sale of any ongoing business, even a sole proprietorship, can be a complicated
transaction. The buyer and seller (and their attorneys) must consider the law of
contracts, taxation, real estate, corporations, securities, and antitrust in many situations.
Depending on the nature of the business sold, statutes and regulations concerning the
issuance and transfer of permits, licenses, and/or franchises should be consulted. If a
license or franchise is important to the business, the buyer generally would want to
make the sales agreement contingent on such approval. Sometimes, the buyer will
assume certain debts, liabilities, or obligations of the seller. In such a sale, it is vital that
the buyer know exactly what debts he/she is assuming.

In any sale of a business, the buyer and the seller should make sure that the sale
complies with the Bulk Sales Law of the state whose laws govern the transaction. A bulk
sale is a sale of goods by a business which engages in selling items out of inventory (as
opposed to manufacturing or service industries). Article 6 of the Uniform Commercial
Code, which has been adopted at least in part by all states, governs bulk sales. If the
sale involves a business covered by Article 6 and the parties do not follow the statutory
requirements, the sale can be void as against the seller's creditors, and the buyer may
be personally liable to them. Sometimes, rather than follow all of the requirements of the
bulk sales law, a seller will specifically agree to indemnify the buyer for any liabilities
that result to the buyer for failure to comply with the bulk sales law.

Of course the seller’s financial statements should be studied by the buyer and/or the
buyer’s accountants. The balance sheet and other financial reports reflect the financial
condition of the business. The seller should be required to represent that it has no
material obligations or liabilities that were not reflected in the balance sheet and that it
will not incur any obligations or liabilities in the period from the date of the balance sheet
to the date of closing, except those incurred in the regular course of business.

A sale of a business is considered for tax purposes to be a sale of the various assets
involved. Therefore it is important that the contract allocate parts of the total payment
among the items being sold. For example, the sale may require the transfer of the place
of business, including the real property on which the building(s) of the business are
located. The sale might involve the assignment of a lease, the transfer of good will,
equipment, furniture, fixtures, merchandise, and inventory. The sale may also include
the transfer of the business name, patents, trademarks, copyrights, licenses, permits,
insurance policies, notes, accounts receivables, contracts, cash on hand and on
deposit, and other tangible or intangible properties. It is best to include a broad transfer
provision to insure that the entire business is being transferred to the buyer, with an
itemization of at least the more important assets to be transferred.

In making this allocation, the buyer's interests will often conflict with the seller's. The
seller will ordinarily seek to maximize its capital gain and ordinary loss by allocating the
price to items producing such a result. The buyer will normally seek to have the price
allocated to depreciable assets and to inventory in order to maximize ordinary
deductions after the business is acquired.

In its simplest form, the sale of a sole proprietorship could have provisions similar to the

I.     In consideration of the mutual promises and covenants of the parties,
Seller sells, assigns, transfers, and conveys to Buyer all the stock of goods,
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