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How To Transfer Ownership Of A Business

11/24/2022 14:59:21 +0000
The world of business can be very difficult and extremely cut throat.
 
Plenty of budding entrepreneurs will have ideas that their business will continue to grow and they will be extremely successful for many years to come.
However, sometimes this doesn't work out and these entrepreneurs will have to cut their losses by transferring their ownership of the business and try their hand at something else.
 

So regardless of what type of business you have, you will need to know how you can transfer your ownership of your business in case you need to do this in the future.

Luckily, we've got all the information that you need with this handy guide. We'll show you all you need to know.

Therefore, if you think this might be something you need help with - then read on to learn more.

[1] Sell Your Business
Perhaps the most common way that you can transfer your ownership of your business is simply by selling it.
 
Typically, there are two ways that you can do this.
 

The first is through cash financing. To do this, you must first agree on a valuation of your business based on its sales, assets and growth prospects.

From here, the buyer will purchase the business by using a loan or capital savings.

The second is through a scheme known as owner financing sale.

This is also pretty simple and involves the buyer purchasing your business by making payment installments over time, usually with a pre-agreed timeframe and a pre-agreed fee per month or quarter.

Whichever of these ways you choose or agree to, you will need to ensure that you create an official business purchase agreement along with a bill of sale.

These two documents formally agree and prove a sales record.

After all this has been completed, you will have officially and successfully transferred your ownership of the business.

[2] Reapportion Ownership
If you are in a partnership or you have an LLC, you can simply transfer your ownership by adding new partners or you can add members who will purchase their ownership interests.

Once the major share of your capital has been purchased, they then become the new owners of the business.

Another such way is by reapportioning your ownership by allowing partners to purchase shares directly from you.

This is essentially the same route but it does not add any new members or new partners to the equation.

[3] Lease Purchase
A lease purchase agreement is a fantastic way to entice new ownership and get buyers to your business.
 
It's a pretty simple system. Essentially a buyer will purchase the business with a lease contract.
 

Once the lease terms have expired, the potential buyer will then make a decision to purchase the business formally based on their experiences with the business.

They do not however have to go through with the purchase.

If they do decide to terminate their relationship with the business, you can simply advertise the lease purchase once again and try a second time, until eventually you find a buyer outright.

[4] Gift The Business
You may decide it is worth simply bequeathing or gifting the business to someone else, which will likely be a family member or a close friend.
 
If you gift a business with annual shares that equate to less than $16,000 - the transfer is tax free.
How To Transfer An LLC
Transferring ownership of an LLC can be rather complex, so you will need to know how you can do this specifically. Follow these steps for guidance.
Check Your Operating Agreement

You will need to refer yourself to the LLC's articles of organization and review your operating agreement.
 
This is because you will need to know if there are any clauses or specifics about selling the business.
Document What The Purchaser Is Looking To Buy

You need to determine exactly what the buyer wants to purchase.
 
They may only be looking for your assets, but some buyers will want the entire LLC.


You will then need to draft an LOI (a letter of intent) which tells the new owner that you're looking and intending to sell X to them.

Draft A Sales Agreement
A buy to sale agreement needs to be drafted which outlines exactly all of the terms of the sale.
 
This includes a timeframe, whatever is included in the sale, who is involved in the sale and any other important and relevant information.
 

These are important factors in selling an LLC because there are very complicated and precise tax processes and legal obligations that have to be followed to the letter.

Inform Other Parties About The Sale
You will likely need to speak to your lawyer about the sale because you will likely need to speak with your Secretary of State.
 

Other parties that have to be informed will be:

  • The IRS (Internal Revenue Service)
  • Any financial institutions that your LLC has accounts with
  • The LLC's registered agent
  • Any states that the LLC is registered in
You may also wish to send out information to your clients or customers in the form of a mass email or paper correspondence.
 
There is no obligation to do this, but it is a good idea because it keeps everyone informed and can help with potential headaches during this time.
Can I Transfer An EIN To Another Owner?
No, an EIN cannot be transferred to a new owner and you will need to obtain a brand new one. You should speak with your legal representative if possible about this process.
Final Thoughts
Selling a business or transferring ownership can be a little tricky, but if you know some of the basics, it can make the whole process just that little bit easier.
 

We hope we've been of some help to you!

About the Host
Sophie Howard is the founder of Aspiring Entrepreneurs, a community designed to help people develop the skills and confidence to build a business and a life that serves them. Sophie began online in 2013 with an Amazon firm, which she sold for more than $1 million in 2015.

Sophie has lectured on stages all around the world, encouraging and teaching other ambitious entrepreneurs. She has established instructional programs educating thousands of students how to sell online, in addition to releasing over 1000 products.

Sophie has also written a book titled "Aspiring Entrepreneurs: A Guide to Finding Your Best Path to Financial Freedom."
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