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Business Transfers – Part 1: Introduction

Business Transfers – Part 1: Introduction

In this first part of a six-article series on Business Transfers, we will provide a broad topical overview that will be supplemented by future articles. As used in this article, “business transfers” will include M&A (mergers and acquisitions) transactions, stock sales, business (assets) sales, takeovers and buyouts. In contrast to money or “equity raises” by a business (which may involve a change of control), this article will focus on a privately negotiated, non-auction transfer of a business or its ownership.

Events Triggering Business Transfers

Seller motivations for a business transfer include taking money off the table, retiring and/or transitioning the business by planned succession to family, management or third parties. For a detailed outline of the planned succession, see Family Business Succession Planning. Buyer motivations may range from financial (i.e., the financial return of the business as an investment) to strategic (such as a platform or add-on expansion of product/service lines, geographic areas, etc.). The form of a business transfer is limited only by the creativity of the buyer, the selling owners and their professionals offering guidance to optimize the tax, legal and financial outcomes.


Sellers should address gaps in the management structure, operational weaknesses and legal issues that might trouble a buyer. While all businesses have issues, many can be corrected with advance planning. To maximize price, sales should be planned with as much lead time as possible. To implement the business transfer process, the seller will typically prepare a two to three page “teaser” summary of the business (without identifying it) for potential buyers to make a preliminary evaluation. Those interested in further information are required to sign a confidentiality agreement to protect the seller’s information. As described in Confidentiality Agreement Traps & Trade Secret Destruction, improperly drafted confidentiality agreements may destroy rather than protect confidential information.

Cost Control

To manage costs, the parties may seek a nonbinding letter of intent (see Letters of Intent – Key Aspects and Dangers) with price and terms based on stated assumptions before engaging in extensive legal, accounting, financial and business due diligence. In this situation, the letter of intent describes the assumptions on which the proposed offer is based; subsequent due diligence would also need to confirm the underlying assumptions. The due diligence process, which can be extensive, will be discussed in a future article.


Barring third party problems such as regulatory approvals, consents to key leases and contracts, and legal issues (licensing, antitrust, etc.), a typical private sale will take two to three months from start to finish to complete due diligence, finalize definitive agreements and close the transaction.

Structure Overview

Business transfers are typically structured as an “asset purchase,” “stock purchase” or merger, all of which have different tax and liability implications to be discussed in future articles. In addition to these general structuring issues, the purchase price may include cash, seller notes, contingent consideration (earn-outs) and property. If the property includes buyer stock, the sellers should conduct due diligence on the buyer and may need to negotiate minority owner protective rights. Structuring issues will be addressed in a series of future articles regarding: the effect of different structures; the representations, warranties and covenants of purchase documents; indemnification provisions as risk allocation and contractual limitation of such provisions; and ancillary documents including earn-outs and noncompetition agreements.

Related Articles

Business Transfers – Part 2: Acquisition Objectives

Business Transfers – Part 3: Seller Preparations

Family Business Succession Planning

This blog does not establish an attorney-client relationship and does not constitute legal advice. Legal outcomes are based on the particular facts of a situation and the application of the law to those facts.  Anyone with issues described in this blog should hire an attorney for legal advice based on the relevant facts. The firm has no obligation to maintain the confidentiality of any information received by email or comments.