Legal Mistakes to Avoid When Selling Your Business

Legal Mistakes to Avoid When Selling Your Business

Close up of hand of businessman signing a form. Business man signing contract for future deal. Business man signing legal document. Male hand signing employee contract with a bond.

A common mistake that many make when preparing to both buy and sell is a business is to overlook all the various legal issues involved.  A legal mistake can bring the entire process to a screeching halt or even worst cost you a small fortune.  For this reason, it is vital to carefully evaluate the full slate of relevant legalities before selling your business.  In this article, we will explore some of the key legal points you need to consider long before placing your business on the market.

Mistake #1 Neglecting to Have an NDA

Having potential buyers sign an NDA, or non-disclosure agreement, is critically important when you are selling your business.  One benefit to having this contract signed and sealed is that in the event that your deal falls through, which often happens, your buyer can’t disclose the details to other parties.  However, if you don’t have an NDA, your buyer could reveal important aspects of your discussions.  In the process, your business and its worth could be damaged.

Mistake #2 Failing to Get a Good Lawyer

There are times to cut corners, and then there are times when cutting corners is really risking cutting your own throat!  Prepping to sell your business is one of those occasions where investing in good and proven counsel is a must.  A good lawyer can give you a range of legal moves you should and should not make.

Additionally, hiring a lawyer with an established background is just what you need to create ironclad agreements.  Sellers have an array of risks that they must face when selling a business.  For example, you as the seller need protection from a potential buyer hiring away your key employees.  Without ironclad agreements and a tight NDA, a buyer could pass on buying your business, yet “steal” your employees or weaken your business in other ways.

Mistake #3 Skipping the Letter of Intent

Another legal way to protect your interests comes in the form of a letter of intent.  This letter should be one of your key tools in negotiating the deal.  Included in the letter should be a reverse termination fee for the buyer.  This applies in the event that the buyer walks away for a reason that is not the seller’s fault.

Inclusion of this clause means that the seller is far less impacted if the deal does not go through as planned.  Further, this clause goes a long way in ensuring that you attract serious buyers only.

Reap the Benefits of Ample Preparation

These are just a few of the many errors that sellers often make and regret later on.  It is a worthwhile investment to take the legal aspects of selling your business seriously.  If you prepare for the sale of your business adequately, you will have a far superior experience.  That means you should speak with a proven and competent lawyer and Business Broker long before you actually put your business on the market.

Copyright: Business Brokerage Press, Inc.


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