Acquisitions, Dispositions and Mergers of Privately Held Businesses

Every year public companies worth billions of dollars are merged, acquired or sold - often with great fanfare in the news media. Many privately held companies, both big and small, across New York State and New Jersey, also change hands annually, usually with little publicity.

If you are considering buying or selling a privately held business, keep in mind that these are complex transactions with both legal and tax risks which must be addressed. At the Law Offices of Matthew L. Holden, LLC our experienced team will guide you through every step of the process.

Selling a Privately Held Business?

The first question is: what kind of business are you selling? There will be different legal concerns and tax consequences if the business entity is a sole proprietorship, a partnership, a corporation or a limited liability company. Is this an asset sale or stock sale? The business entity documents may govern the process of the sale of the business. Does the business entity have a partnership agreement, shareholders agreement, bylaws or operating agreement that regulate how the sale of the business must proceed? If you have partners in the business are each them in favor of selling? What happens if one or more partners do not want to sell? From a financial perspective, you will aim to structure the sale to minimize your tax liability. What is your basis in the business? What portion of the sale price are you ascribing to equipment, intellectual property or goodwill?

One objective will be for you to establish a value for the business. This is essential since you want to be sure to receive a fair price when you sell. While public companies have a value set by the stock market, you may need to hire a business valuation expert to determine your asking price. The business entity documents may also provide for a process to determine a fair market value.

There are different options for transferring ownership of the business. The simplest is an outright sale, in which you transfer ownership and receive the total purchase price at closing. However, sometimes purchasers do not have enough cash on hand and may attempt to negotiate an installment sale where you are paid a portion of the purchase price at closing, retain a promissory note executed by the purchaser and a security interest in the business until the purchaser pays out the balance of the purchase price over a period of months or even years.

The next step is to draft a purchase agreement. This will cover what is being sold, including equipment, inventory, intellectual property and customer lists. The agreement may also address any liabilities, and representations and warranties of the respective parties.

Purchasing a Privately Held Business?

You will follow a similar process if you are the purchaser. You will need to consider how to protect your interests. For example, you may require that the current owner remain as a consultant for the first year to help you manage and learn about the company.

You will want to be sure that the company's legal records are in order and that the accounting is up to date. You will wish to verify that there are no tax liabilities or other payables.

Merging Privately Held Businesses?

There will be many questions to be resolved. Who will be in control of the new company? What role will each party play in the future? Will certain divisions of each business be eliminated once the entities merge? How do the businesses maintain brand equity? Does each entity keep its name? Do the entities come up with a new entity name or some combination of both name? Is a new business entity formed to purchase the assets and the liabilities of the two entities that are merging? How do you retain your employees while you negotiate the merger? Does each party insist on the execution of a non-disclosure agreement prior to entering negotiations?

As you have read, buying, selling or merging a business is complicated. With any sized business, there are significant sums of money involved. You have spent a good portion of your life building a business and creating value. You want to be sure to get expert legal and accounting advice so that you can assess the risks while making informed decisions. We invite you to contact us before an offer is even presented so that we can advise regarding the legal protections you should establish, if they have not yet been introduced to your business. This way our team can ensure your interests are fully protected.

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