The process and common contract clauses to sell a business in Illinois are easy to follow but are also quite detailed. There are a number of steps to follow and clarifications made that affect both parties in the transaction.
There are different kinds of sales:
- Asset sale – This is a sale where the buyer purchases only the tangible assets of the business.
- Stock sale – This is a sale where the buyers purchases most or all of the stock from the seller.
- On-going concern – This is a sale of a company that doesn’t have any stock issued but is similar to a stock sale in that it transfers ownership of the business as an on-going concern to the buyer.
The sale of a business as an on-going concern means the buyer is generally buying the liabilities and the intangible assets of the business. However, some of these assets and liabilities can be separated out from the sale.
Valuation of the Business
The valuation to sell a business can be a tricky. As noted above, the value of the business will depend directly on the scope of assets and/or liabilities. It’s also recommended that a third party with expertise in valuing businesses conduct it.
The Selling Memorandum
During the early stages of the buying process, the attorneys for a seller will draft a selling memorandum. This memorandum gives potential buyers needed information regarding the current financial condition of the business, what specifically will be included in the sale, and an overview of the business.
At this stage, the potential buyer’s lawyers will conduct their due diligence investigation. This investigation is to confirm that the contents of the selling memorandum are accurate and complete. It’s also an opportunity for the potential buyer to ferret out any potential issues that might advise against buying the business.
The Letter of Intent
Assuming the prospective buyer is still interested after the due diligence phase, the buyer’s and seller’s attorneys will negotiate a letter of intent. This letter includes the offer price from the buyer and other relevant terms. This letter is not a completed sale. The sales terms of the letter aren’t binding on either party.
However, the letter will usually include a confidentiality clause that prohibits the buyer from revealing any proprietary information, customer lists, or other sensitive company assets. The letter will also typically restrict the seller from negotiating with another buyer for the same business while negotiating with the buyer who’s signed the letter of intent. These types of clauses are binding.
Typical Terms in a Contract to Sell a Business
Once the letter of intent is given to the seller, the two parties begin negotiating specific terms in earnest. There are typical terms to be negotiated and included in the final sales contract:
- Specific assets, both tangible and intangible, and liabilities being transferred
- Exact inventory list
- Payment price and terms
- Confirmation of compliance with all legal regulations
- Closing date when ownership is legally transferred