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Selling A Business - Alternative Strategies

Owners and managers of businesses reach a decision to sell them for a variety of reasons.  Individual owners often sell as part of retirement and estate planning programs.  Others sell because there are no family members who are qualified and motivated to manage the businesses upon their retirement.  Executors, administrators, trustees of the estate of deceased owners sell businesses to realize funds for taxes and distributions to heirs and beneficiaries.

Younger business owners sometimes sell because they cannot take advantage of business opportunities without access to the sales, marketing, technological, financial or other resources of a larger organization.

Owners often sell businesses that are performing poorly.  Often, the selling owner is unable to eliminate the problems in order to allow the business to recover.  It may be necessary to obtain a buyer with strong financial and management resources to achieve a turnaround. General Seller Objectives
Sellers usually have several criteria which have different priority levels.  These include price, payment terms, certainty, simplicity and prompt completion of the acquisition.

There may be several important considerations such as the continued performance of arrangements between the seller and other people associated with its business, including management, employees, customers and suppliers.

Sellers often make important price and other financial concessions to a buyer whose offer fulfills non-price objectives.  Bidders who offer the highest price may be rejected for various reasons.  For example, sellers may reject a buyer which requests a lengthy period to raise financing, or one which lacks reputation in the industry.  Sellers whose business has a reputation for high quality may reject a buyer who intends to use its trade name to sell lower quality products.  Key employees with strong management skills might be restrained by a large, highly-structured corporate buyer.

It is important to identify specific objectives and assign targets and priorities for each at the earliest stages.  The objectives should also be discussed with attorneys and accountants.  A broker may be retained to represent the buyer.  Such advice and discussions assist the seller to set realistic objectives and negotiating strategies.  They also will assist in obtaining qualified bids.  There may be business risks and loss of time if the seller spends time with bidders which will ultimately be rejected because they cannot fulfill key objectives of the seller.

Sellers often start with overly optimistic and overbroad objectives.  Such objectives should be revised at the earliest stages in order to attract serious buyers.  Certain objectives can be eliminated or reduced if experience has shown that they discourage serious parties.

Basic Acquisition Structures

There are three basic methods to sell a corporate business:
A.  Statutory merger
B.  Sale of stock
C.  Sale of assets

Statutory Merger
A statutory merger is a combination of two corporations pursuant to procedures in the corporation laws of the state or states where the corporations exist.  A merger is accomplished by preparing a merger agreement which is signed by the corporate officers and approved by the boards of directors and usually also the shareholders of both corporations. Upon filing a certificate of merger with the proper state agencies, the corporate existence of one corporation is merged into the other corporation which becomes the surviving corporation.  Corporation laws provide that, upon the filing, the surviving corporation automatically succeeds to the assets, liabilities, rights and obligations of the other corporation. The two corporations become one and there is no need for real estate deeds, bills of sale and contract assignments to transfer the assets and business to the surviving corporation.

Sale of Stock
A sale of stock is a sale of all or part of the stock of a corporation by its shareholders.  The buyer becomes the owner of the stock which may or may not be sufficient to provide voting control. A stock sale does not usually require consent of the directors or officers of the acquired corporation and is sometimes accomplished even when they oppose the acquisition. After the acquisition, the acquired corporation continues in existence and to own and operate its assets and business. When a corporation purchases all or a majority of the stock of another corporation, the acquired corporation becomes a subsidiary.

Sale of Assets
A sale of assets involves the sale of all or part of the assets and usually also the related business from a seller.  The sale is accomplished by a purchase and sale agreement which is executed by officers and approved by the boards of directors of both corporations. The agreement is also approved by seller's shareholders if substantially all its assets are sold.  The assets must be transferred by deeds, bills of sale and assignments.  If the buyers have agreed, liabilities and obligations may also be transferred.  Often, consents of third parties may be necessary before the transfers can be made.

For each of the above methods, corporation laws allow the price to be paid with cash, stock, debt or combinations.  However, tax laws, accounting rules and other considerations may restrict or provide incentives affecting the choice.

There are different forms of sale contracts.  A primary question involves the structure of the acquisition as a stock purchase, asset purchase or merger.  Another basic structural question involves the decision to pay in cash, in installments or by issuing securities.

Sale and purchase agreements typically include certain basic terms.  The items normally included are grouped in various categories:

Parties & Recitals
Statement of the Transaction
Representations and Warranties
Closing Procedures, Documents and Payments
Termination and Default
General Provisions


Screening Potential Buyers
The Retiring Founder's Decision
Decisions When Selling a Troubled Business
The Legal Investigation
The Accounting Investigation
The Negotiation
The Negotiating Team
The Negotiating Objectives Confidentiality
Special Topics - International Aspects

China Business News
International Investment Opportunities
International Joint Ventures
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Joint Ventures & Strategic Alliances
Licenses and Royalties
Purchasing a Business – Alternative Strategies
Selling a Business – Alternative Strategies