Tips for Selling a Small Business
Strategic planning is crucial to selling your business. An important step is drafting an accurate sales agreement that contains all relevant terms. The sales agreement should be developed with an attorney and should specify, among numerous other issues, everything a buyer intends to purchase.
The U.S. Small Business Administration provides the following comprehensive and helpful checklist of items that should be addressed in a sales agreement:
- The names of all sellers, buyers and the business being sold
- Relevant background information
- List of all assets being sold
- Purchase price and allocation of assets
- Covenant not to compete
- The terms of the agreement and payment terms
- Inventory of everything included in the sale
- Representations and warranties of all parties
- Determination as to the access to any business information
- Determination as to how the business should be run prior to closing
- Fees, including brokers fees
- Closing date
Forbes notes the importance of planning ahead and considering tax implications before selling a business, large or small. In contrast to most corporations, partnerships and limited liability companies do not actually pay taxes themselves. The partners or members of these entities pay tax on their portion of profits. Sales of these entities work the same way, with partners and members paying taxes on their portion of the sale proceeds. Thus, the gains on selling a proprietorship, partnership or LLC are subject to only a single level of tax. S corporations are taxed like partnerships.
Taxes on the sale of C corporations are more complex, since they are taxed on their income at a corporate tax rate. Plus, individual shareholders pay taxes at their own personal rate on corporate distributions. Thus, there are two levels of taxation when C corporations are sold.
If you would like more information about selling a small business, contact an experienced business law attorney in Washington, D.C. who can evaluate your unique needs.