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The Risk Involved with Selling a Business

Selling a BusinessAs a business owner, selling a business can be a bittersweet time. The company that you helped build, the company that you poured your heart and soul into is no longer yours. You are no longer the owner. You are no longer the boss. While you may stay to work at the company to help for a smoother transition, ultimate control of the company is no longer yours. At least you have nothing else to worry about, right?

The Risk Involved with Selling a Business 

As with any business transaction, unanticipated and undiscovered liabilities can arise after closing, which may cause financial harm to you, the seller. These liabilities can result from existing claims against the business or from the seller’s unintentional breach of representations and warranties.

Managing the Risk Involved with Selling a Business

Fortunately, there are several options available to help protect the seller against financial harm. These options include:

  1. Non-Recourse Contract: The buyer essentially purchases the company “as is.” The seller neither makes any representations and warranties regarding the condition of the company, nor agrees to indemnify the purchaser for existing liabilities. In this instance, all the risk falls to the buyer.
  2. Caps on Liability: If the buyer does not agree to take on the risk, the seller can still protect himself or herself against undiscovered liabilities by placing a certain “cap” amount on the buyer’s recourse.
  3. Indemnity Baskets: The two types of indemnity baskets – excess liability basket and overflow basket – do not allow the buyer to recover any compensation from the seller unless and until the aggregate of such claims against the business exceed a fixed, agreed upon amount.
  4. Representation and Warranty Insurance: This type of insurance covers only those representations and warranties made by the seller in a specific transaction, and can thereby be used to protect the seller from the financial harm caused by the unintentional breach of certain representations and warranties.
  5. Retitling Assets: To protect personal assets from claims by the buyer, the seller can retitle his/her assets by either placing the assets in the spouse’s individual name, or in the joint name of them and their spouse, as tenants by the entireties. This provides the seller protection under marital laws.
  6. Asset Protection Trusts: An offshore asset protection trust, or APT, acts like any other trust, where the distributions of income or assets to the beneficiaries are made only at the discretion of the trustee.

Without proper legal protection, you stand to lose the purchase price of your business and possibly more. Consult with your legal counsel to determine which of the above protections are best for your unique situation in order to minimize the risk of financial loss.

If you have questions about The Risk Involved with Selling a Business, please contact Offit Kurman co-founder, business attorney, and Managing Principal Ted Offit at toffit@offitkurman.com.  Mr. Offit has substantial experience in numerous practice areas including Corporations, Partnerships and Limited Liability Companies, Taxation, Mergers and Acquisitions, Financial Planning, Reorganizations for Financially Troubled Companies and Asset Protection Strategies.

Offit Kurman Attorneys at Law: Business Law Practice Group

Since 1987, Offit Kurman Attorneys at Law has been specializing in mergers and acquisitions for buyers and sellers, and also in asset protection for sellers in connection with the sale of their businesses. The attorneys in our mergers and acquisitions (M&A) practice area have earned a strong reputation for handling the gamut of business combinations and sale transactions, including the sale, purchase, restructuring and consolidation of business entities and divisions, management buy outs, exit and succession planning and joint venture transactions. Our attorneys have the experience to work through any one of the many issues that can arise during an M&A transaction and close the deal on terms that are most favorable to you, our clients.

From pre-transaction planning, through the letter of intent, due diligence, document drafting, and closing, Offit Kurman is committed to meeting and exceeding your expectations.

If you would like to learn more about Offit Kurman’s Business Law Practice Group to see what the attorneys in our mergers and acquisitions (M&A) practice area can do for you, please fill out our contact form to access the knowledgeable legal guidance that our experienced business law team of attorneys has to offer. You can also connect with Offit Kurman via FacebookTwitterGoogle+YouTube, and LinkedIn.

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Managing Risk and Liability in the Sale of a Business