Legal Considerations When Selling a Business

Small business owners have a lot to juggle, and you probably haven’t had the time to get a law degree. Just because you don’t have a law degree doesn’t mean that the law isn’t involved when you sell a business. You need to make sure that everything is on the up and up so you don’t find yourself in a courtroom. Luckily, staying on the right side of the law isn’t so difficult, and it’s something that you can do with minimal effort.

You might need a confidentiality or non-disclosure agreement

It seems that every time you turn around, you hear about someone rich claiming an employee has violated their non-disclosure agreement or NDA. These agreements basically protect you from any beans that might get spilled about your business. If you have any type of skeletons in your closet, you’ll want to make sure that you make the buyer sign an NDA.

The biggest conception about confidentiality is that you have something to hide. You might have something you don’t want people to know, but more likely, you just don’t want your dirty laundry to be aired out in the public. You know, that worker you had to fire for stealing, or the person who was drunk at work, the public has no need to know about any of that.

Intellectual property transfer

Let’s say that you have a business that sells the best chicken noodle soup in town. Maybe you make handmade rugs that are very specific and unique to your brand. You obviously will want to transfer all of this knowledge of how to do it to your new buyer. It’s important for them to be able to continue on doing what you’re doing, but you also want to protect the brand so no one can come in and make chicken noodle soup just like you do.

You will need to transfer the intellectual property when you sell a small business. If there’s nothing that you have to transfer, maybe you own a car detailing business, if that’s the case, you have nothing to worry about. Not all businesses have intellectual property and if you don’t have any sort of secret sauce that makes your business different, you can move onto the next things.

All of your contracts and leases must be accounted for

Just because you’re selling your business doesn’t mean the owner gets a fresh start. The new owner will have to abide by any contracts that you’ve signed. If you have a contract with a supplier, the new owner will have to continue to do business with them.

The new owner will also have to go over the lease that you signed if your business is in a leased space. The new owner must be aware that they are obligated to continue with the lease until it’s up. After the terms of the lease have expired, they can then renegotiate a new price or find somewhere to house their business. None of that is any of your concern once you’ve sold the business and have nothing else to do with it.

You may have to sign a non-compete agreement

The whole idea behind a non-compete agreement is that you don’t sell your business and immediately become competition to the new buyer. You won’t be able to get back into the same business for a number of years or ever. A non-compete agreement protects the buyer so they don’t have to compete against you in the future.

Don’t be surprised if your buyer asks you to sign a non-compete agreement. As with anything that you sign, you’ll need to ask a lawyer to look over what you’re signing. A non-compete agreement will have lots of jargon in it that the average person doesn’t understand.

Something else that you need to consider is if your family is currently in the same business. Maybe you have an auto garage that repairs cars and your son has a similar business. Ask your lawyer if everything is okay and that your sale won’t have any negative impact on their business just to be safe.

Selling a business is full of legal landmines

Lawyers rule the world, and they’ve made selling a business as difficult as it can be. There are a ton of legal considerations that you must consider long before you transfer the ownership of your business. The person on the other end of the deal has a lawyer, and so should you; that way, no one can pull a fast one on you.

‍