What Happens When I Sell My Business?

There is no standard answer to this question. What typically happens is that the buyer and seller have a sales agreement that addresses what is being sold, how it will be transferred, and the responsibilities of each party before, during and after the sale is consummated. The agreement is the result of negotiations regarding the provisions of the agreement. This is an important agreement, since it may provide that the owner do important transition work, training, and shepherding of the transfer to the new owner. You MUST have this agreement carefully crafted by an attorney, and you should review it carefully. Your attorney should understand how these things work, and you must be aware that oftentimes they use boilerplate provisions that may be inappropriate or even deleterious to your interests. Read it, understand it, challenge it. Be sure it contains every provision of your agreement with the buyer, and that it protects you.

Typically the business continues on, with your employees becoming the employees of the new owner. They may decide to make changes, but that’s on their watch; you a now no longer an owner and you probably have little influence on it. In many cases the sales contract may state something about no changes in personnel for a period of time.

Dividing the money up depends upon the ownership percentages. If you own 50%, chances are you are entitled to 50% of the proceeds.

The legal structure may also cause some interesting problems. If the business is organized as a corporation, the acquirer will not want to purchase the stock. There are some important tax and legal ramifications to that, so typically what happens is what is called an “asset sale” in which the corporation sells all of its tangible and intangible assets. The buyer gets a new “cost basis” and the seller, the corporation, recognizes gain. If the corporation is a C-corp, it pays tax, if it is a S-Corp, then the gain, and not necessarily the cash, is passed through to the owners in percentage of their stock interests in the corp. The corporation may or may not stay in business, typically it is dissolved.

Chances are that you won’t sell for all cash. You will probably have a note payable or earn-out provision, which means that there will be a cash flow from the purchase for several years. We have some interesting and informative material on these issues at Home — Certified Entrepreneurial Advisor .