Do I Need a Lawyer to Sell My Company? What to Consider

The Role of an Attorney for the Sale of Your Company

When it comes to selling your business, one of the most common questions is whether you need a lawyer. The answer to that question is often "yes."
The sale of a business includes a trade of ownership of assets, an exchange of money, and the documentation of the transaction in order to ensure that all parties are satisfied with the terms. Consider a merger or acquisition, which often involves changing everything from the name of the business all the way to its corporate structure. It may sound complicated – and in many cases, it is – but having a lawyer by your side means that you don’t have to worry about getting buried in the details. An experienced business lawyer will know all aspects of the business sale process and help you navigate the legalities.
In addition to assisting with the sale of a business, your lawyer can guide you through all the necessary documentation from beginning to end. For example, corporate bylaws need reviewed and/or amended in order to make the sale happen. In some cases , you may have to create an entity such as a limited liability corporation (LLC) and file the necessary paperwork to do so. Your attorney will help you handle these types of legalities.
In addition, most sales require certain agreements between the buyer and the seller. Depending on the size and scope of the sale, different agreements may be necessary. Through proper legal assistance, you can draft the necessary bills of sale, purchase agreements, stock sales, and other arrangements that make the sale lawfully binding.
There are roughly 30+ documents that may be needed to complete the sale of a business. Your attorney can help you develop and implement the ones that apply to your sale. They can also help you decide which documents are needed to make the sale legally sound and avoid future issues.
It’s easy to think you can handle the sale of your business on your own. It’s also easy to underestimate how much legal work is involved. As such, it’s in your best interests to secure an experienced lawyer to help you with the process. In the end, it will be well worth the time and money spent to find yourself in an assured position after the sale.

How to Match Your Company with Legal Complexity

Your business’s size and industry can drive the complexity of selling your business. Consider whether you need your lawyer to help you find a buyer, and how involved that lawyer will need to be in the sales process. If you are selling a large corporation, then you will likely want your lawyer to hire the investment banker or broker who will help you find a buyer. For a smaller corporation or sole proprietorship, finding a buyer is more likely to be a do-it-yourself proposition.
The type of buyer may also affect your need for legal services. A third party, broad market sale may require an experienced investment banker. If you are selling to someone already involved in your business – a co-owner, for example – you can probably work with a local lawyer who knows your business. In any case, if you need outside help finding a buyer, you may want to get qualified referrals.
The most complex issue requiring legal services may be the need to unwind corporate or shareholder agreements among co-owners. These agreements may have critical tax consequences and may require valuation of the business. If you are selling a family business to a family member, there may be a whole different set of issues, including tax- and estate-planning concerns.

Legal Dangers with Selling Your Company without an Attorney

When contemplating the sale of all or part of your business, there are a number of legal issues that are teeming with potential risk. Without the guidance of a knowledgeable business attorney, one or more of these issues can prove a legal minefield.
Buyer’s Due Diligence
The buyer of your company or business interest is going to conduct due diligence. If you don’t have counsel, be careful what you do and say as the business owner, especially during the due diligence process. Buyers will often want you to make representations about your business including with respect to: assets, liabilities, contracts, lease agreements, insurance coverage, employees, government compliance, lawsuits and litigation, intellectual property, product and services, etc. If you make misrepresentations and the buyer relies on them in closing the transaction, you might end up on the hook for damages in the future.
Representations and Warranties
Speaking of representations and warranties, if you are entering into an asset purchase agreement, and even in stock purchases, you are going to make representations to the buyer about the business. The buyer will seek broad representations regarding: assets, liabilities, contracts, leases, insurance, governmental issues and litigation, etc. If you inadvertently or intentionally make a false representation and the buyer pursues the issue and claims damages (perhaps because he/she/it didn’t want to buy the business if such representations were in fact false), you may face substantial liability. Legal counsel can help minimize the risks associated with representations and warranties.
Development Agreements
If you have employees that will remain, it is also critical to have a development agreement in place with those employees and a non-compete agreement. If you are selling a business interest other than a corporation, consider what happens after you sell with respect to your employees. Do you want to let your key employees out the door with knowledge of your customers, pricing, contacts and other confidential information about the business? If not, make sure you put some operational protections in place.
Sales Tax
Sometimes sellers will simply assume sales tax is not an issue when selling products to buyers. That is not the case. If you have received payments from sales taxed jurisdiction, that may create income tax later on to you when you receive the proceeds and have to consider where it was earned. Sales Tax balances can also be assumed by the buyer and recapture the proceeds from you.
Creditors and Collections
Indeed, if you have been in business any time at all, you know how much of a pain it is having to collect from customers. If you sell your accounts receivable (objectively great prospects with good credit) to a third party and the collectors aren’t able to collect, such third parties will come back on you. You can do something about that by managing the sale of receivables to minimize risk.
License and Sharing Agreements
If you are selling an asset purchase that requires the continuation of agreements with licensees or other third parties, make sure you know what you are getting into. This is especially critical when it comes to trademark license agreements. If you fail to get assignment approvals or have termination rights drafted in to protect your interests, you may run into trouble later on.
Escrow Agreements
Be sure you understand what an escrow agreement is and what it requires of your business. These agreements are only as good as the party that makes them and they are sometimes very one sided. Watch out for your own business in transactions. Don’t sign over the store without putting in proper counterbalancing interests for yourself.

Considerations When Not Using a Lawyer

In addition to traditional counsel, there are other professionals with whom a business owner can work when selling a business. These include business brokers, accountants, and online legal services. In this section, we take a look at some of the pros and cons of working with these types of professionals.
Business Brokers
Business brokers are intermediaries between business owners and buyers. A good business broker will help you determine the value of your business and what your company is worth in the marketplace. Often, the biggest advantage of a broker is their network. They may have a large pool of potential buyers who they regularly market businesses for sale. Additionally, as with loans, many business brokers will work on a success-fee basis, taking a percentage of the sale price if the sale goes through.
However, be aware that because brokers get paid only if a sale occurs, they may be inclined to undervalue a business in order to make a quick sale. Further, most business brokers will act as a "dual agent" – that is, they will represent both the buyer and the seller. Most states do not require brokers to obtain permission to be a dual agent (unless the parties to the agreement state otherwise). If you are concerned that your broker may not be looking out for your best interests, you can always insist on hiring two different brokers: one to represent you in the sale , and one to represent the buyer on the other side. Finally, keep in mind that there are many duds out there – choose your broker wisely.
Accountants
While accountants may be able to identify ways to prepare your business financially for a sale, they probably don’t have the legal expertise to help you navigate the sale process. They may be able to provide you with basic advice about how to structure certain terms of the deal, but you may still need to hire a lawyer to do the heavy lifting.
Online Legal Services
Online legal services can be an option for small businesses. LegalZoom and Rocket Lawyer, for instance, allow users to create contracts via sophisticated interview software. The advantage to these services is that they are often low cost: some contracts can be created for under $100. However, the contracts are not customized to your particular situation. Like most online legal services, LegalZoom and Rocket Lawyer hold themselves out as document preparation services, and do not guarantee that the documents they produce are legally enforceable or appropriate for your specific needs. (LegalZoom and Rocket Lawyer have both been sued for the way they advertise their services.) Additionally, as with other online resources, it’s important to be careful when using online legal services; your state bar or attorney general might not be in favor of such services.

The Impact a Lawyer Can Have on Your Business Sale

Consider the cost-benefit analysis of hiring a lawyer. On one hand, a lawyer will definitely cost you money. It’s possible to sell your company without a lawyer if your transaction is small and you’ve had experience in closing similar deals. On the other hand, many entrepreneurs overlook the importance of a lawyer when selling their company and end up regretting it later, when it’s too late.
While it’s hard to provide a single answer for every deal, I’ll discuss three things you can consider.

• Getting peace of mind and neutrality from working with someone who does this for a living, day-in and day-out. If you have a company with multiple owners, do you give deference to one owner’s opinions over another? Thrashing out business details among the owners and then selling to a third-party buyer just creates more disagreements and more issues that need to be negotiated.
• Avoiding the tech sales person’s paradox – selling technology software or services or a consulting deal to a prospect is tough, especially if you’re not 100% sure what your service, software, or process entails. How do you quote pricing? Put the pricing in writing before your meeting? But if you don’t, how do you leave the meeting with a commitment? It’s the same thing with selling your company. You don’t want to reveal all of your company’s intellectual property to a potential buyer if you haven’t worked out a deal which adequately protects you from unfair access to your information. The lawyer is key to this.
• Minimizing your future liabilities through contractual protections, indemnities, holdbacks, escrows, etc. This will include, among other things, your representations about the business that the buyer relies on. In simple terms, you told the buyer these things about the business and now you’re being held responsible for them. For example, you may have represented that nothing was wrong with the business. When someone later brings a lawsuit against the business, you may have to indemnify (i.e., pay for) legal fees. If you sold your business for $5 million and you have a 100% indemnification obligation, you’ll want to make sure that you have sufficient capital to cover all of your indemnity claims.

How to Interview and Select a Lawyer for Your Transaction

One of the most important things you can do to prepare yourself is to obtain the services of a qualified, experienced business attorney. Knowing when and how to find the right attorney for your business sale can save you time, money and effort. The first step is to get referrals from trusted sources. Ask around to financial professionals, accountants and other entrepreneurs who have sold businesses. You also can use search engines to find prospective attorneys and schedule attorney interviews. Assess experience in successfully representing business owners like you. Ask how many businesses a prospective lawyer has sold that are similar to yours and whether or not he or she has previously represented buyers and/or sellers. A business lawyer with experience on both sides of the table can offer unique insight. In addition, ask if the attorney has experience with the type of sale you are considering: for example, whether the business will be sold to another business, to a private individual, through an auction, with or without assets such as real estate, etc., and confirm that the attorney has sold these various businesses. Be sure to check credentials to ascertain the depth of experience. Remember that your ultimate goal is to minimize risk during the business sale process with legal guidance you can trust . Your lawyer should be a member of the state bar association and the American Bar Association, and has a solid history with a specialization in business law. The attorney should have earned high marks from previous clients, and should be in good standing with your state’s bar association and the Better Business Bureau. Many states have a bar association website that lets you see if an attorney has faced discipline, and even provides a link to the disciplinary decision. You can also check to see if an attorney has faced a malpractice suit, or been sanctioned. Don’t be afraid to ask for referrals and check reviews. If you don’t trust an attorney’s judgment and evaluation of a situation with your business sale, then ultimately you will not feel comfortable hiring that attorney. The best way to put your mind at ease may be to request references from current and past clients and check reviews online. You can use lawyer rating services and even social media groups such as Facebook or LinkedIn to find out if an attorney you are considering has a good reputation. Another great way to verify that a prospective business lawyer treats clients fairly? Meet personally with some of his or her former business clients and assess their experiences.