Often business owners reach a point where they are considering the sale of their business either through the sale of shares or the sale of assets to a third party.
Perhaps you receive an enquiry to purchase your business from a competitor, supplier or one of your key employees or you are contemplating retirement and engage a business broker to find the right buyer and you are ready to move forward. If there are other shareholders in your company, as a preliminary matter, you will, of course, want to consult with them and ensure that everyone is ready and willing to sell their shares or the company sell all its assets. If there is any resistance, to putting the company up for sale, and assuming that there is a shareholder agreement in place, you will want to review the buy-sell provisions of the agreement to ensure that there is an exit strategy available for selling shareholders.
When you are ready to move forward, one of the first things to consider is to ensure that your corporate house is in good order. This means that your company’s minute book and all necessary corporate filings are up to date and all company financial information and commercial contracts have been properly recorded and stored in a secure and organized fashion for future reference by any potential purchaser and its legal and financial advisors. You should also consult with your tax advisors to ensure that any tax consequences arising from a sale are fully understood and, if necessary, a pre-closing tax reorganization should be considered and implemented.
A potential purchaser may wish to do some preliminary due diligence on your company however before any disclosures are made, it is imperative that you require the purchaser to sign a non- disclosure agreement (NDA). Not only will this agreement provide for confidentiality provisions but it should also address non-solicitation of customers and employees during the due diligence phase and sale transaction process but also for a reasonable period following the signing of the NDA.
If a purchaser decides to move forward with a letter of intent (LOI) prior to conducting any due diligence, the LOI will also typically contain a non-disclosure and non -solicitation covenants. You could expect the purchaser’s due diligence review will be extensive and thorough and will include a review of the company’s minute book, corporate records, financial statements, prior tax returns, customer information, commercial contracts including any property and equipment leases, details of lenders financing and security, employment and independent contractor agreements, ownership of intellectual property and other matters pertaining to your company and operations.
Being organized and up to date represents the first important step in preparing your business for sale and will contribute to the success of the transaction.