Selling Your Business

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If you are thinking about selling your business, there are some simple strategies which can maximize the return on your efforts. Although every transaction involves its own unique set of challenges, there are a number of common issues to be aware of so that you avoid being caught unaware during the negotiations.

Preparing your Business for Sale

In conjunction with your professional advisors, you will want to develop a marketing plan. This is a critical step as it will assist in the determination of a realistic value for your business and, as well, identify potential purchasers. Tax advisors can assist to determine whether to structure the transaction as a sale of assets or shares. Generally, the seller wants to sell shares of the company which operates the business due to superior tax treatment while, in most cases, it is advantageous for a purchaser to purchase the assets used in the operation of the business. There are exceptions to this general rule so tax advice, specific to your particular circumstances, should be sought at the outset.

In determining potential buyers, consideration can be given to those within your organization, such as senior managers or employees. Even direct or indirect competitors may be potential buyers.

Additional matters to consider prior to putting your business “on the market” include whether you would finance a portion of the purchase price, whether you would be prepared to give a covenant not to compete for a certain period following the sale of your business and whether you would, at the request of the purchaser, remain with the company during the transitional period or to consult on a periodic basis. You should have the answers to these questions prior to commencing negotiations in order to encourage a smooth negotiation process. You should, as well, inquire as to whether the consent of third parties may be required, such as the landlord under a premises lease or a lessor of leased equipment. Finally, the impact of the sale on key customers, suppliers and employees must be taken into account and a strategy developed for dealing with these parties.

Letters of Intent

An Agreement of Purchase and Sale (“ APS”) will be the main document between the vendor and the purchaser and will set out all of the terms and conditions for the sale. By their nature, an APS can be time consuming to negotiate as both parties come to the table with pre-conceived ideas of how they anticipate the sale to proceed. For this reason, Letters of Intent (“LOI”) are often used as a first step along the road to finalizing a sale transaction.

LOIs summarize, often in point form, the essential terms and closing date while leaving the less essential details to be negotiated and incorporated, with the terms of the LOI, into the APS. We have found LOIs to be a useful tool to avoid basic misunderstandings about the deal and, from the seller’s perspective, to ensure that both parties are in agreement on, at the very least, the essential terms of the purchase and sale.

Despite their brevity, great care must be taken in drafting the LOI to ensure that it is binding, non-binding or only partially binding, depending upon the parties’ intentions. Remember, the ultimate goal is always a comprehensive and binding APS.

LOIs are often signed in conjunction with a Standstill Agreement. A prospective purchaser does not want to be competing with other suitors for your business. Standstill agreements are often requested by a purchaser to prevent you from dealing with other prospective buyers during the period that the parties are negotiating the terms of sale or during the period that the prospective purchaser is undertaking its investigations, or “due diligence” of the business.


Given the costs involved in preparing your business for sale and negotiating the terms of sale, it is important to insist upon a cash deposit from a prospective purchaser. Not only is a deposit the best indication of the seriousness of the purchaser but, if the purchaser elects not to complete the transaction without due cause, the deposit may be retained by the seller to offset some or all of the seller’s transaction costs.

Preparing for Closing

After you have procured an Offer to Purchase or LOI, your business will usually become the subject of a due diligence inquiry by the purchaser and its professional advisors. This is a thorough investigation of the business undertaken prior to closing, in an effort to gain further knowledge about the business and to discover any potential problems. Very often, the purchaser’s obligation to complete the transaction will be subject to satisfaction with the due diligence investigations. Your accountant and other professional advisors can assist you in preparing for this process to answer any questions that may arise.

Finally, and perhaps most importantly, as a prospective purchaser will have full access to your business during the due diligence period, you will want to ensure that, if a transaction of purchase and sale is not completed for any reason, the prospective purchaser is bound to maintain in confidence any information that it obtains during this period and covenants not to use it either for the benefit of itself or any other party. The terms of the confidentiality covenants can be included in the LOI or in a separate Confidentiality Agreement.

As the sale of one’s business can often be a demanding experience, the assistance of qualified professional advisors can facilitate the process from the decision to sell through to the completion of the transaction.