1. Sole Proprietorship: An Overview
2. How to Sell a Sole Proprietorship
2.1. Separation of Assets
2.2. Valuing the Business
2.3. Changing the Company Name
2.4. Assuming Contracts
2.5. Written Contract

A deed of transfer of business ownership is the transfer of business ownership from one person to another. When it comes to transferring business ownership, there are generally several steps taken before the actual sale takes place. Most often, the deed of transfer occurs for a sole proprietorship.

Sole Proprietorship: An Overview

Specifically, a sole proprietorship is merely an alter-ego of the business owner. For example, if the sole proprietorship enters into contracts with business vendors, financial institutions, and the like, it will actually be the owner signing the contract, and the business itself will not be a party to the transaction.

For this reason, the sole proprietor takes ownership of the company’s profits and losses since they are tied to him. What’s more, the sole proprietor utilizes his own personal Social Security Number (SSN) when operating the sole proprietorship. Therefore, if the sole proprietorship has any outstanding debts or obligations, the owner will be personally responsible for paying such debts.

How to Sell a Sole Proprietorship

You can’t sell the sole proprietorship but rather only the assets of the actual business. The tangible and intangible assets can be sold to the new owner, who will then take over running the business. This also means the new owner will be solely financially responsible for the company’s debts, taxes, etc. The new owner will need to utilize her own personal SSN when operating the business.

The following steps will be taken when transferring the deed of a business:

  • Separation of assets
  • Valuing the business
  • Changing business name
  • Assuming contracts
  • Written contract

Separation of Assets

With regard to the separation of assets, the owner has complete ownership over all business assets, i.e. tangible and intangible property. The owner can transfer such assets, but the potential buyer will want to know what she is actually purchasing. Such assets should be clearly identified in the asset purchase contract. The assets might include office space, computers, office equipment, office furniture, etc. Since the seller needs to separate the business assets from his own personal assets, it is important that any business owner, including sole proprietors, keep separate bank accounts and general ledgers for business activity. This will help the seller identify which assets belong to the business and which assets belong to him personally.

Valuing the Business

This is perhaps one of the most important steps to be taken during the deed transfer process. Business owners must properly value their business and ensure that they are receiving a fair price for the overall assets of the company. The valuation might be determined by looking at the company’s statement of cash flows, changes in owner’s equity, and balance statements to identify the true finances.

The seller and buyer might agree on a price immediately; in the event that they don’t, you should engage in several negotiations before agreeing on the price. You might also want to hire a professional appraiser to value your business.

Changing the Company Name

Sole proprietors can do business under their own name or establish a DBA (doing business as) under a unique name. Regardless, if the seller has a DBA that the buyer wants to use, you should contact someone at the county clerk’s office in the state where you operate to find out how to transfer the DBA. It might be simple, requiring only a form be filled out indicating that you agree to sell the DBA name to the buyer.

Assuming Contracts

Any current contracts that you have for your sole proprietorship can be transferred over to the new owner if she wishes to take over those responsibilities. This is a rather easy and straightforward step as you can simply advise the other party that a new owner will be taking over the sole proprietorship, thus taking over the contract. The only issue that might arise are those contracts with clauses preventing transferring of the contract unless that party agrees.

Written Contract

Now, you’re ready to draft a sales contract regarding what is being sold, for how much, when the sale is expected to take place, and any other important items that you deem appropriate for the sale. It might even be a good idea to have a lawyer review the contract.

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