How To Transfer The Ownership Of A Business

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You own a small business, and you’ve decided you want to transfer ownership of that business to someone else. Maybe the business isn’t as profitable as you’d hoped, or you’re ready to retire. Whatever your reason, the most common way to transfer ownership of a business is to sell it. Before you can sell your business, however, you need a strong business valuation to make sure you’ll get the most out of it. If you’re planning on passing down your business to your children or other family members, on the other hand, you’ll also want to consider family dynamics and the skills and experience of the younger generation.

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Selling the Business

To sell a private business, you have 2 options: an owner-financing sale or cash financing. In the former, the buyer purchases the company over time by paying installments agreed upon in the transfer of business ownership form. For the latter, the buyer pays for the company upfront in cash using a loan or capital savings after agreeing on a valuation for the assets.

Adding New Partners

Another method of transferring business ownership is to bring in new partners who will have to each pay for their ownership interests. Under this kind of arrangement, new shareholders buy into the company, typically with cash, to transfer the majority of the share capital out of your hands.

Handing down a Family Business

Stay on as a consultant after the transition. Have the younger generation keep you on the payroll of the company for at least a couple of years after they take over. You can advise them on business development matters as well as help ensure a smooth transition.

  • If you have employees who are worried about the transition, your presence will also make things easier for them. They can be assured that the younger generation isn’t going to drastically change things.

Tips

  • If you’re only leaving temporarily and plan to return to running your business, you may want to lease the business. A lease doesn’t involve a transfer of ownership.

Warnings

  • If your business is organized as a sole proprietorship, you can’t actually sell the business, since it isn’t a distinct entity from you as the owner. You can, however, sell your business assets.
  • If you have other partners in your business, you typically cannot transfer your share of ownership in the business without their consent. Check your partnership agreement to find out the process for leaving the partnership.
How To Transfer The Ownership Of A Business

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