Complex Legal Structure

Even if a business is attractive to a buyer, it may be difficult to sell, due to legal issues. If you’re aware of any of these situations, it may be difficult for your client to sell the company and invest the proceeds:

  • Partnerships: If Mary and two other partners own Snowline, the three partners must be in agreement in order to smoothly transition the business to a new owner. Each partner may own a different percentage of the entity, and the capital invested may differ between each partner. Partners may disagree on the value of the business, or dispute the timing of the sale.

  • Owner’s Divorce: A divorce proceeding can complicate the sales process for an owner. Assume that Mary owns the business with Bob, and that Bob is going through a divorce. Bob’s interest in the business may be considered a marital asset, which means that his spouse may have some rights over the value of the business asset.

  • Contingencies: A contingency is a future event that cannot be predicted with certainty, and business contingencies can impact a company sale. Assume, for example, that Snowline has been sued for patent infringement, and the issue has not been resolved. This legal contingency may deter potential buyers from making an offer for Snowline. In addition, many companies have contracts with customers, employees and vendors. In order to sell the business, Snowline will need to rework these types of agreements.

All of these issues can impact the value of the business and a potential company sale.

No Succession Plan

Perhaps the biggest obstacle to a company sale is the lack of a business succession plan. No one wants to consider his or her own mortality, and this subject can be difficult for an owner to consider. However, every company has stakeholders who are concerned about the future viability of the business, including owners, creditors, company management, customers and vendors.

Every owner should decide who will manage the business if the owner dies or becomes disabled. Here are some other steps that can help the business stay viable if the owner is no longer involved:

  • Buy-Sell Agreement: Mary can put a buy-sell agreement in place, which allows a designated party to purchase Snowline, based on a financial formula. This type of agreement minimizes business disruption if Mary cannot manage the business herself.