Change is inevitable in any business. As a business owner, you may eventually feel the need to change your business ownership either as a part or whole. Perhaps you want to retire, have come across new opportunities, experience a major life-changing event, or want to develop different goals. A change of ownership will ensure your business endures even after you take a step back.
When changing your business, think of it as a life transformation rather than just a mere transaction. It’s never just about cutting the deal but making a transition plan in the next phase in your life. This article aims to explain how you can change your business ownership;
Decide on the reason for the change of ownership
The reason to invoke the change of ownership will affect the strategy adopted to get it done. There are several ways in which a business change of ownership can be done. Review some of these options and select the best.
A gift to a family member
A business owner approaching retirement may gradually relinquish control of the company to a chosen family member.
Selling the business
When selling the business, a business broker comes in handy.
In case of a private sale, there is cash and financing for interested parties with the interested buyer using installments and a finance period to buy the company, in the case of an incorporated small business that turns a profit.
There are two ways included for a change of ownership. One way would be to sell assets or sell the company shares. A broker or an accountant will help you determine the most profitable for your structure.
Adding a partner
Handing over ownership to a partner means reviewing and redrafting the business operating agreements. A new partner will be required to pay for their ownership interest in the business.
Understand how the Business Structure Is Impacted
With any change in business ownership, there come implications for the different legal entities. Know your business structure and understand how the transfer will impact it;
A limited Liability Company
Changing ownership for a Limited Liability company is quite simple for individual business owners and their partners.
Documentation is usually reviewed and updated in accordance with the change. Some of the matters updated in case only one member is leaving include; member withdrawal, taxes, interest, and voting rights. In this case, the others will have an opportunity to buy their ownership stake from them.
For a corporation, any number of new shareholders can purchase ownership in the company. Depending on how the business is incorporated, the business can offer shares either as common stock or preferred stock.
In accordance with the company structure, the owner can choose to sell their common or preferred stock.
Change of ownership in a sole proprietorship is complex, as the business value is only linked to the owner. In this scenario, it’s best to sell the business to a single buyer at once.
Changing ownership where two or more partners are involved is straightforward since it only depends on each partner’s percentage of ownership. However, interest on capital must be relinquished for a new partner to come on board or an existing partner to take over.
Assemble a team of advisors
Hiring the right team of advisors is a vital step in a business change of ownership. At a minimum, you will have to hire an attorney and a financial advisor to help you develop the best approach.
Business ownership transfers usually have specific deadlines and involve a significant amount of paperwork to be filed within the required dates. Hence, working with the right legal and financial team will help you navigate through the process effectively.
The team will help primarily with changes on essential business documents. This may involve name changes, cancellation of trademarks, or transfer of assets and liabilities. They will also ensure that the company’s e-commerce site is valued correctly and added to the sale.
Besides your assembled team, they will provide counsel on assessing your debts and provide insights.
Get a Business Valuation
Before transferring ownership, it’s a good idea to have your business valued by an independent third party. If you’re selling your business, a reliable valuation will ensure that you receive a fair price in return.
Whether it’s for transaction purposes, knowing your business value is beneficial in various circumstances. Sone of the situations includes; applying for a business loan, mergers, and seeking investor funding.
Additional State Checks and Introductions
When a business is formed, papers are usually filed with the state. Likewise, when the business is changing ownership, business papers must be filed.
For instance, a change of ownership to a family member impacts the business’s legal status and has to be filed with the state authorities. In case you had applied for the company using your tax number, then the new one has to apply using the is instead.
Notify Vendors, Suppliers, and Customers
If you change ownership to a new third party, you should notify your vendors and suppliers immediately after the transaction is complete. This is vital because contracts will have to be modified. Besides, vendors will want to know who their new contact in the business will be. Notifying your customers of changes in ownership is also a good practice. Thank them for their loyalty and prepare them for new leadership. In case you are pursuing new ventures, you may also share with them the details.
Transfer Business Name to New owner
Extra care should be observed when transferring the business name and online store to the new owner. The right e-commerce platform makes this process quick and easy.
Ensure you notify the web host and allow them to make the required changes required.
Every change in business ownership has its unique requirements and considerations. The type of business entity and the transfer structure determine the steps you should take.
However, with the right team of advisors and a clear succession plan, the process can be executed efficiently and effectively.
Consider also using a cloud-based platform that performs these business services for you to complete the transfer successfully. The end of one business could be the beginning of another business.