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| All content presented here and elsewhere is solely intended for informational purposes only. The reader is required to seek professional counsel before beginning any legal or financial endeavor. |
To transfer ownership you can:
- Gift it to a member of the family
- Sell the small business
- Add a partner
- Dissolve the company.
Transferring ownership has many financial and legal implications. Generally speaking, business owners should consult accountants and lawyers to execute all the right steps correctly.
Determine the motivation for the transfer
- Gift it to a member of the family - a small business owner nearing retirement could wish to hand over the company to a trusted family member. The aim would be to sell in part, gift, or sell the whole company. You might even consider selling intellectual property.
- Sell the small business - when selling the legal entity, either publicly or privately, it’s best to use a business broker. A broker or an account can help you decide which approach will be most profitable for your business structure.
- Add a partner - adding a partner involves redrafting and reviewing the company operating contracts. The additional partner will agree to pay for their part in the company, typically as an existing partnership or sole proprietorship.
- Dissolve it - consider dissolving the company if it can’t be sold or handed over. You will need to file the correct paperwork with the state.
Establish a team of advisors
If you are selling a small business and considering how to transfer business ownership, you will need to recruit a team of advisors. You should at least have an attorney and a financial advisor to help you decide your optimal approach.
Once you establish your team, they will offer counsel on how to value a small business and make sure your assets are secure. They can also offer insight into the advantages and disadvantages of transferring ownership, including selling intellectual property.
Understand how the business structure is affected
Consider how your business structure will affect the transfer.
Here are the different legal entity types used to structure a business:
- A limited liability company (LLC) - individual business owners and their partners must review and update their documentation. Taxes, interest, voting rights, and withdrawal are items to update if one owner is leaving.
- A corporation - any new shareholders, may purchase ownership in the company, including those finding businesses for sale. The way the business is incorporated will determine if the share offered are preferred or common. An owner can decide to sell their preferred or common stock.
- A sole proprietorship - there is only one owner, meaning the business value is linked to you as the owner. It could be preferable to dissolve the company and sell off the assets in this case. See selling a sole proprietorship for further details.
- A partnership - you may need to relinquish interest for an existing partner to take over or a new partner to be welcomed on board.
State checks and introductions
When you formed the company, you filed papers with the state. You must also file papers when ownership changes hands. You should renew details affecting the company's legal status with state authorities.
If you registered for the company tax number with your social security number, the new owner would have to register again with their social security number.
Notify suppliers, vendors, and customers
If you are handing over ownership to a new party, you should notify suppliers and vendors because contracts may need to be renewed or amended.
You should also notify your customers of the ownership change. You can thank them for their loyalty and help them prepare for the new leadership.
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