Avoiding Legal Pitfalls When Selling Your Business
Posted 11-10-2008 7:19 pm by
If you are trying to sell your business, it is important for you to remember that you must be honest and upfront with the potential buyer.
If you are trying to sell your business, it is important for you to remember that you must be honest and upfront with the potential buyer. Although it is perfectly acceptable for you try to highlight the positive aspects of your business, you also need to provide accurate and complete information about the business. So, while you should create a selling memorandum that highlights all of the great things about your business, you also need to provide full disclosure about the potential problems with your business as well. Otherwise, you can find yourself facing legal ramifications. Getting Sued for Fraud One of the main reasons you need to provide full disclosure about your business is to avoid the possibility of getting sued for fraud. If you misrepresent facts about your business, you can be sued for fraud by the buyer. It is important to keep in mind that misrepresentation of the facts does not necessarily mean lying about them. In fact, if you simply fail to provide information about the business that would be relevant to the purchase agreement, you can be sued for fraud. In order to protect yourself from being sued for fraud, it is a good idea to have you lawyer review any materials you plan on giving to the buyer. This way, you can be certain it is accurate and that it covers everything that needs to be covered in order to keep you protected. Avoiding Securities Fraud In addition to getting sued for fraud by the buyer, you can also get in trouble for securities fraud if you are not careful. Although it is perfectly legal to accept stock from the buyer as a form of payment and you are legally allowed to sell stock in your corporation, you need to be certain to follow all applicable federal and state securities laws. Therefore, if you plan to make any transaction that involves selling or exchanging stock, make sure to hire a lawyer to help you understand what you can and cannot say about your business as well as what information you must disclose. Staying Free From Fraudulent Conveyance Another potential legal problem you can face when selling your business is fraudulent conveyance. If you are found guilty of fraudulent conveyance, you may be responsible for repaying the purchase price to the buyer. This is because being found guilty of fraudulent conveyance means you set up a deal with the buyer in a way that set the business up to fail. Therefore, if you represent the business's earning potential in an overly optimistic way that encourages the buyer to take on more debt than the company will earn, you may be found guilty of fraudulent conveyance. It is important to note that you can be found guilty of fraudulent conveyance for up to six years after completing the sale. Therefore, it is important for you to make certain your company has a good chance of survival and you should check into the buyer's resources before completing the sale. AARON MULLER| ADVANTAGE COMMERCIAL BROKERS
BUSINESS BROKER, COMMERCIAL PROPERTY SPECIALIST
DIRECT: 425.766.3940
FAX: 425.882.2547
CHECK OUT MY LISTINGS AT www.acbrokersinc.com
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