How to Transfer Business Ownership
There are over 32 million small businesses in the United States. Many businesses enter and leave their respective industries each year, but there are also times when people transfer ownership to another party. Closing a business doesn’t have to be a negative experience – it can allow you to cash out and enjoy your years of hard work.
We’ve put together a brief guide on how to sell a business the right way. Let’s explore how to transfer business ownership.
Determine Your Needs
Before you transfer ownership, it’s essential to understand your needs. You should properly appraise your company before moving forward.
You can then figure out an asking price when you sell. It’s worth being open-minded when it comes to negotiation.
Consider more than the dollar amount the other party offers. For instance, someone who purchases your business may want you to work part-time at the company for two years to help get everyone else up to speed. If this isn’t something you’re comfortable with, it’s best to negotiate with them or find other buyers.
Consider Your Business Structure
Your business structure will affect your transaction. It does so in operational, financial, and legal ways. Let’s explore some of the most common business structures.
Sole Proprietorships
Many people run a business as a sole proprietorship. This is a company that has a single owner, but it operates differently from other business entities.
You can’t directly sell a sole proprietorship, but you can sell the assets you own. You can also sell rights to your liabilities. An example could be someone who owns a successful clothing brand as a sole proprietorship.
He’s ready to sell his assets and move on to other projects. In this case, he would appraise his business assets before looking for a buyer.
LLCs
An LLC is a limited liability company that is meant to protect the business owner’s assets during a lawsuit. Limited liability companies are a bit more complicated than sole proprietorships.
Using the above example, let’s assume that three people own the same clothing brand. Instead of selling the business outright, an owner who wishes to leave the brand could sell their stake to the remaining owners. The LLC would then draw up a new operating agreement that excludes the former owner.
Partnerships
Business partnerships are subject to state regulations, so you’ll have different requirements depending on where you’re located. In a partnership, someone who wants to transfer ownership would allocate their ownership stake to the remaining owners.
If an owner of the aforementioned clothing brand wants to transfer ownership, they may be entitled to business capital and income per the operating agreement.
So, even though they’re leaving the company, they can still benefit from receiving income and capital shares for a predetermined time. After the owner departs, the operating agreement will be updated to reflect ownership by the remaining individuals.
Incorporations
Companies can be either a C corporation or an S corporation. In both entities, ownership is determined by the number of shares owned. This is measured as a percentage.
To transfer ownership, you will need to transfer shares to another party. These can be gifted, bequeathed, or sold. Legally, an S corporation cannot have more than 100 shareholders.
If the transfer of shares would create more than 100 shareholders, the transfer of ownership would be prohibited in this scenario. In some cases, owners may need to seek approval from other shareholders or a board of directors if they want to transfer ownership of their shares.
It’s best to work with an attorney in situations like these so you can maximize your gains and minimize your tax liabilities.
Let’s assume there’s a business with three owners who equally split 900 private shares. One owner could sell their 300 shares to the remaining members before leaving the company.
Choose the Best Transfer Method
The best method will depend on the above factors. For instance, you can’t outright sell a business if you’re only a part owner.
Similarly, you might not be able to sell your company shares if the board of directors doesn’t approve. In most scenarios, though, the transfer of ownership doesn’t have many obstacles.
Getting Started
To get started transferring ownership of your business, it’s best to work with a professional. They have the experience necessary to get you the best results.
When searching for someone to hire, keep an eye out for what other clients have had to say about their experiences. Look for mentions of the professional’s timeliness and the results they got.
Consider how communicative they are, as well. It should be easy to get in touch with them, and they should be willing to help you reach your goals.
Ask about their pricing structure so you can understand what you’ll need to budget for. You can think of this as an investment into your future, as they can help you get the most money out of your business transfer.
You should also get in touch with an attorney. This will help ensure you don’t make mistakes that can lead to legal issues.
Understand How to Transfer Business Ownership
Finding the appropriate party to sell your business can determine whether you get the outcome you desire. As long as you understand how to transfer business ownership the right way, you’ll avoid many issues you may have otherwise encountered.
From here, you can get started toward your next venture or enjoy your retirement from business ownership. Book a consultation today with our professional team at Fusion. We have the tools and resources to guide you through the process.