Business law

Selling a Business in Denver, Colorado

MY BACKGROUND.

I have been practicing law for more than thirty-five (35) years and I am an Inactive CPA. I have been involved in many sales of businesses involving many types of businesses. I will help guide you, legally and practically, from start to finish for the sale of your business.

FINDING A BUYER.

The next most difficult task is to find a buyer who is willing to pay you the value of your business and who has the financial resources to purchase your business.

USING A LETTER OF INTENT.

If you think you have a serious buyer, a good approach is to use a letter of intent (“LOI”). A LOI is an excellent document to see if you and the buyer agree upon all of the material terms of the transaction without you spending money on attorney fees having me prepare an agreement only to find out the buyer is not agreeable to the material terms. After you and the buyer agreement upon the LOI, I then use the LOI as an outline to prepare the agreement. While the agreement that I prepare will protect you, the agreement that I prepare is not one-sided in your favor because the agreement must reflect the understanding between you and the buyer and be workable for both you and the buyer. The LOI that I prepare expressly states the LOI is not binding on you or the buyer and there is not an agreement until you and the buyer sign an agreement to sell your business.

NON-DISCLOSURE AGREEMENT.

At some point during the process before you disclose very much to the buyer, you will need to have the buyer sell a good non-disclosure agreement. A non-disclosure agreement protects you from certain matters but you must still not disclose to the buyer before closing any sensitive information, such as names of your customers.

SALE OF ASSETS COMPARED TO SALE OF STOCK OR MEMBERSHIP INTEREST

You may sell your business by selling assets or selling your ownership interest (membership interest if it is a limited liability company or shares if it is a corporation). It is extremely rare for a sale not to be the sale of your company’s assets. The buyer will form a new entity and purchase the assets because the buyer does not want to be responsible for any unknown lawsuits that could be filed against your business after closing, and the buyer does not want to assume any of your business’s liabilities.

RETAINING A GOOD CERTIFIED PUBLIC ACCOUNTANT.

Although I am an inactive Certified Public Accountant and understand income tax concepts, I do not provide any income tax advice to my clients. You will need to retain a good CPA to provide you with all of your income tax advice.

One area the CPA will help you with is the allocation of the purchase price among the assets. The income tax treatment for some assets is different than other assets.

TERMS TO INCLUDE IN YOUR AGREEMENT.

Your agreement will include the following terms and concepts:

1. Parties to the agreement.
2. Purchase price.
3. Amount of earnest money.
4. A detailed list of all assets that are being sold.
5. The allocation of the purchase price among the assets.
6. Whether it is a cash sale and if you carry back any of the purchase price, the specific terms for the carry back financing. I will attach all exhibits to the agreement that will be signed at closing for the carry back.
7. The buyer will require that you make the following representations and warranties:

1. The organization of your business (usually limited liability company or corporation) and the entity has the authority to enter into the agreement.
2. The agreement does not violate any agreement, any internal documents concerning your company, or any law or statute.
3. The company’s financial statements are true and accurate. I always attach as an exhibit to the agreement several years of income tax returns for your company and the year to date income statement and balance sheet. Therefore, after closing the buyer cannot state that what you stated about the company’s income and expenses is not accurate.
4. That there are no lawsuits pending and no known facts which could give rise to a lawsuit.
5. That all taxes for your company have been paid.
6. That you owe all assets free and clear, or if you do not, the lien against any asset will be paid at closing.

8. Closing date.
9. Terms of a covenant not to compete that you will sign, to include the number of years and geographic area. Colorado has a specific statute that governs covenants to compete that must be followed.
10. Whether you will stay on after closing for the transfer of the business to the buyer and if so, what the terms will be.
11. How you and the buyer will give notice to your customers that your business has been sold.
12. Dispute resolution. I generally recommend arbitration and I have a good paragraph that I include in my agreements.
13. Because of social media, I almost always include a non-disparagement paragraph in all agreements that I prepare.
14. A paragraph that states the agreement is the entire agreement between you and the buyer. After closing, the buyer may not try to claim you and the buyer had a “side agreement” not in the agreement.
15. A paragraph that if there is any ambiguity in the agreement, the ambiguity is not construed against either party. If this concept is not in the agreement, any ambiguity is construed against whoever prepared the agreement.
16. A paragraph that the State of Colorado laws apply to the agreement.
17. A paragraph how notices are given to each of you.
18. A paragraph that the prevailing party receives attorney fees and costs for any disputes.
19. A paragraph that if any part of the agreement is not enforceable, all other provisions of the agreement remain valid and enforceable.
20. A paragraph that your company and the purchaser will report the same allocation of the purchase price to the IRS. You do not want to be audited by the IRS because your company and the purchaser report the allocation of the purchase price of the business differently on your respective income tax returns.

CASH PURCHASE PRICE OR CARRYING BACK PART OF THE PURCHASE PRICE.

A sale is much more complex if your company carries back part of the purchase price instead of it being a cash sale. I must prepare a promissory note, a security agreement, and file a UCC-1 with the Colorado Secretary of State for all personal property that is collateral. If real property is collateral, a deed of trust is recorded in the clerk and recorder’s office in the county in which the real property is located.

I SHOULD PREPARE THE AGREEMENT.

I like to prepare the asset purchase agreement instead of having the buyer’s attorney prepare the agreement for a few reasons. If I prepare the agreement, we make sure all of the concepts are included in the agreement that we would like to include. If the buyer would like any changes, we are able to analyze what the requested changes are and why the buyer is requesting the particular change. It will be more time efficient if I prepare the agreement (less attorney fees for you), instead of reviewing an agreement that the buyer prepares and I comment on all of the changes that you and I would like, and then we have to follow up to confirm all of the changes have been made..

ATTACHING EXHIBITS.

I always attach all exhibits to the agreement that will be signed at closing so you do not arrive at closing and have to negotiate the form of the documents at closing. Closings are much easier and cleaner if all documents that will be signed at closing are attached to the agreement.

CALL ME.

If you are contemplating selling your business, please call me at 303-782-4900 and we will discuss how best to proceed to accomplish your goal.