Business Sale Closing: Key Documents to Sign
A small business owner preparing to sell, or an entrepreneur looking to acquire a Main Street business, you'll need to sign several key legal documents before the business sale is final. These documents make the sale official and formalize agreements made during the due diligence process. Without them, business owners could face delays and potential liabilities.
Core Documents
The following documents outline the details of the sale of your business:
- Business Purchase Agreement: The conditions of the sale agreement, including the price, payment details, and any terms both sides must meet.
- Bill of Sale: Confirms the transfer of physical business assets like equipment, furniture, or supplies.
- Asset Purchase Agreement / Asset & Inventory Lists: Outlines assets included in the sale and their condition.
- Closing Statement: Summarizes financial transactions, including final payments and any prorated costs on the balance sheet.
- Funds Transfer Documentation: Provides proof of payment between the buyer and seller.
- IRS Forms: Includes any necessary tax return forms, like Form 8594 for asset allocation.
- Settlement Statement: Breaks down all financial adjustments, closing costs, and payouts.
Legal Transfer Documents
Ownership information must be updated on all legal documents to show the new owner. Some can simply be transferred, while others need to be rewritten. For Main Street businesses, this process is typically more straightforward than for larger corporations, though attention to detail remains crucial. Depending on what kind of business it is, there might be special rules to follow. Mistakes or missing paperwork can cause delays or problems later.
If the business rents commercial real estate, the new owner needs to take over the existing lease or sign a new one. This is particularly important for location-dependent businesses like retail shops or restaurants. If vehicles or machinery are included, documents must be updated to reflect the new owner.
If the business has digital assets or intellectual property, like a logo, a new invention, trademarks, copyrights, or something they created, an assignment agreement needs to be signed to transfer rights and responsibilities to the new owner.
If multiple people own the business, incorporation documents must be updated to show that everyone agrees to the sale. Agreements with suppliers and other companies may need to be updated to allow the new owner to continue existing contracts instead of having to make new ones.
Operational Documents
Certain documents and agreements help keep the business running smoothly after the sale.
- Employment Agreements: Confirm new terms for employees staying with the business.
- Non-Compete or Non-Disclosure Agreements (NDA): Prevent the seller from sharing business secrets or starting a competing business too soon.
- Confidentiality Agreements: Keep sensitive and confidential information private, including customer lists and financial statements.
- Training Agreement: Outlines any training the seller will provide to the new owner or employees.
- Transition Services Agreement: Covers temporary support the seller may offer after the sale.
- Customer Relationships/Goodwill Transfer: Documents that formalize the transfer of customer relationships, which can be especially valuable for local businesses where personal connections are key to success.
Financial Documents
Prospective buyers review many financial documents during the due diligence process to assess the financial health of the business. They'll look at cash flow statements, profit and loss statements, accounts receivable, and business valuation documents.
There may be other financial documents required at closing, especially if the buyer will be making payments over time or the deal involves financial commitments. For Main Street business acquisitions, lenders (including SBA lenders) often require additional documentation to secure financing.
These include:
- Promissory Notes: Outlines repayment terms for seller financing.
- Security Agreements: Protects the seller by securing collateral if the buyer doesn't pay.
- UCC Filings: Officially records the seller's financial interest in certain assets until fully paid.
- Escrow Agreements: Holds money in a neutral account until conditions of the sale are met.
- Payment Verifications: Confirms that all payments have been completed.
- SBA Loan Documents: If the buyer is using Small Business Administration financing, additional paperwork will be required.
Assembling the Team
Hiring professionals to sell your business can help streamline the sale process and make sure everything is done right.
- An attorney who understands local business laws reviews contracts, handles legal paperwork, and makes sure that the sale follows the law.
- An accountant helps with tax filings, financial records, and identifying potential tax savings.
- A business broker who specializes in Main Street businesses assists with negotiations, market valuation, and keeping the deal on track.
- An escrow agent manages the funds to make sure both parties meet their obligations.
- Some sellers consult a financial advisor to help them plan for life after the sale.
Post-Closing Requirements
After the sale, a few final steps must be completed. Ownership records for bank accounts, supplier contracts, warranties, and business registrations need to be updated.
Certain government filings may be required to notify the IRS and state agencies of the change. Local businesses often need license transfers for legal operation, particularly those in regulated industries like food service, childcare, or professional services. Update insurance policies to reflect new ownership.
At this point, employees should be told about the business sale, if they weren't already aware. It's important to communicate any changes that affect them, and take steps to streamline the transition in ownership.
Create a communication plan to tell customers you're selling the business to maintain their trust. For Main Street businesses deeply connected to the local community, consider making announcements in local media or hosting a transition event. Vendors and suppliers may also need updates to maintain smooth operations and avoid disruptions. Taking care of these final details helps the buyer and seller move forward confidently.