How To Prepare to Sell Your Business:
What You Need to Know From a ...
Legal Perspective
Markus May
May Law Firm Ltd.
Naperville Financial Center
400 E. Diehl Rd. Suite 130
Naperville, IL 60563
630-864-1004
[email protected]
Introduction
 Preparing to Sell Your Business
 The Sale Process
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Preparing to Sell Your Business
 Corporate Formalities
– Issue Stock if not already issued
– Minutes regarding Officers/Directors and Past
Actions
 Operating Agreement or Buy/Sell
Agreement
 Piercing the Corporate Veil
– Run the business to avoid personal liability
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Preparing to Sell Your Business
 Clean up Financials

Perks

Cars

Insurance Payments

Grocery Cards
 Make Yourself Dispensable
– Training
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Preparing to Sell Your Business
 Review Key Licenses
 Review Intellectual Property Ownership



Patents
Trademarks
Copyrights
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Preparing to Sell Your Business
 Review Ownership of Property
– Title
– Works Made for Hire
 Computer Software
 Advertising
 Art Work
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Preparing to Sell Your Business
 Review Contracts
– Vendor
– Customer
– Lease
 Warranties of Work Performed
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Preparing to Sell Your Business
 Worked hard to get here, don't lose it now
 Begin Assembling Your Deal Team
– Financial Advisor
– Accountant
– Attorney
– Broker
– Business Valuator?
– Insurance Agent
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Sale Process
 Avoid Surprises
– Disclose, Disclose, Disclose
– Breach of Trust Kills Deals
– Better up Front than Later
– But not too Early
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Sale Process
 Broker Agreement
 Set Price and Market Business
 Confidentiality Agreement
 Letter of intent
 Due Diligence
 Purchase Agreement
 Closing
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Letter of Intent
 Generally Prepared by Buyer
 Sets the Terms of the Deal
 Get Attorney Involved in Negotiating
– Deal Killer if Change Terms Later
 Earnest Money?
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Letter of Intent
 Non-Binding Except Certain Items
 Takes Business off the Market
 Allows Due Diligence
– Make sure you get what you think you’re
getting
– Adjustments to Deal
– Due Diligence on the Buyer

Earnest Money?
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Purchase Agreement
 Identify the Parties
 Identify What is Being Sold
– Stock v. Assets
– Accounts Receivable?
– Liabilities
– Exclusions from Sale
– Some Liabilities Follow
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Purchase Price
 Adjustments
– A/R
– Inventory
– Net Operating Assets
 Pro Rations
 Allocations
– Form 8594
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Purchase Price cont.
 Payment Terms
– Seller Financing
– Security from Buyer
• Letter of Credit
• Security Agreement
• UCC Filing
 Earn Out
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Representations and Warranties
v. As-Is Sale
 Organization and Good Standing.
 Enforceability; Authority; No
Conflict.
 Capitalization.
 Financial Statements.
 Books and Records.
 Sufficiency of Assets.
 Description of Owned Real
Property.
 Description of Leased Real
Property.
 Title to Assets; Encumbrances.
 Condition of Facilities.
 Accounts Receivable.
 Inventories.
 No Undisclosed Liabilities.
 Taxes.
 No Material Adverse Change.
 Employee Benefits.
 Compliance with Legal
Requirements; Governmental
Authorizations.
 Legal Proceedings; Orders.
 Contracts; No Defaults.
 Insurance.
 Environmental Matters.
 Employees.
 Labor Disputes; Compliance.
 Intellectual Property Assets.
 Relationships with Related
Persons.
 Brokers or Finders.
 Securities Law Matters.
 Solvency.
 Disclosure.
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Conditions to Closing
 No Adverse Changes
 Satisfied with Due Diligence
 Buyer Financing
 Satisfactory Lease
 Franchisor Approval
 Big Accounts Follow
 Etc.
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Indemnification
 Breach of Agreement or Items Before
Closing
 Personal or Corporate?
 Set Off
 Baskets
 Duration
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General Provisions
 Dispute Resolution
 Venue
 Assignment
 Waiver
 Etc.
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Ancillary Documents
 Employment Agreements
– Seller
– Key Employees
 Promissory Note
 Security Agreement
 Bill of Sale and Assignment
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Post Closing
 Training
 Purchase Price Adjustments
 Taxes
 Investment of Income
 On the Beach….
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Conclusion
 Assemble Good Advisors
 Prepare Well and get Good Results
 Disclose, Disclose, Disclose
 Patience with the Process
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Markus May, Esq.
Markus May is a client focused business attorney with knowledge in a broad range
of industries. He represents buyers and sellers of businesses and deals with all
aspects of sales including closings, negotiations, drafting letters of intent and
purchase agreements, and entity formation. Mr. May is a frequent speaker on the
legal aspects of buying and selling businesses. He represents business clients as
well as clients who desire to start, buy or sell businesses. Mr. May advises clients
on how to avoid disputes and litigation and how to structure contracts and leases
to minimize risk and maximize future benefits. He has chaired each of the Illinois
State Bar Association Business and Securities Law Section Council, DuPage
County Bar Association Business Law Committee and Chicago Bar Association
Business Law and Mergers and Acquisitions Committees. He has had articles
published on topics related to business sales as well as limiting personal liability
for company actions.
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