Last Updated on December 17, 2022 by Anda Malescu
In the United States, a business owner can transfer their company’s ownership to another individual or to another company. An owner can sell their business gradually or through an outright sale, and therefore a change of business ownership occurs.
Usually, a change of business ownership has both legal and financial implications that vary in each transaction. The change of business ownership can occur by either selling the company, or selling just a portion of the business, selling assets of the business, lease-purchase ownership interests among multiple owners, partner retirement, involvement of a new partner or family member transfer.
The partnership agreement normally describes how new partners can join the company and the price they have to pay for their ownership interests. The partnership agreement also contains details such as who can become a new partner and how to approve the change of ownership.
Company sale is the most popular mechanism of business ownership change and can be accomplished in two ways
First, the buyer can pay for the new company by using personal resources or by taking out a loan. However, the seller receives the whole amount from the buyer once the transaction is made.
Second, the buyer can opt for an installment sale. In other words, the buyer can pay for the business over time. In this case, however, the seller undertakes the risk that the buyer might not be able to pay the whole price within the time set and under the terms and conditions agreed to.
As discussed, the other two popular mechanisms involved in a change of business ownership are lease-purchase and family member transfer. Regarding lease-purchase, the lessee runs the business for the lease period. In other words, at the end of the lease, the lessee can either buy the business for the set price or walk away and give the control back to the owner. This is a very good option for a buyer that has doubts about the company. The second option, the family member transfer, is suitable if the owner wants to transfer the business to a family member.
Another important aspect to cover is the type of business that has its ownership changed
One must distinguish between sole proprietorship and partnership. By definition, a sole proprietorship has only one owner. Therefore, it is easier to change business ownership because the sole proprietorship dissolves. For example, an individual that runs a successful business as a sole proprietorship retires and sells his business together with his equipment to a company. To complete the transaction, the individual and the company execute a sales contract to memorialize the sale. After this, the sole proprietorship does not exist anymore.
On the other hand, in a partnership, two or more partners have specific interests in the company – this is a percentage of ownership that is usually provided for in the partnership agreement. In general, the same agreement contains clauses for circumstances in which the company welcomes a new partner or when one of the partners hands over his or her shares to either a new partner or an initial partner. Similarly, a sale-purchase agreement has to be executed in order to govern the transaction and the change of ownership.
We successfully plan and prepare buy-sell agreements and effect the change of business ownership. Contact us or schedule a consultation with your business attorney in Miami, Florida USA to help you complete a change of business ownership and plan and execute a buy-sell agreement.
