Selling a corporation in California involves four vital stages:

  • The preparation of the business for sale.
  • The negotiation between potential buyer and seller.
  • The prevention of potential problems before they happen, which is called due diligence.
  • The documentation of the sale.

When selling a business, it's helpful to know what you're selling and the price you are willing to accept for it. It is necessary for the business owner to decide to sell, either the business entity, which includes the stock in a corporation or membership interest in a limited liability company with all the assets and liabilities or if he or she wants to sell the business assets alone.

If the business owner is considering an entity sale, it would be a great idea to check with the California Secretary of State to make sure the business entity is in good standing before putting it up for sale.

Preparing to Sell a Business

Before selling a business, you need to have a good comprehension of what your business is worth by obtaining an approximate estimate of the value of it. A good way to get an estimated worth of your business is by doing research within your industry of all other businesses and their sales prices.

As you get ready to sell your business, it is essential to:

  • Straighten out and organize all factors of your business, including making certain that your relationships with vendors, distributors, customers, and all others are well documented and amiable.
  • Use a standard form of advertisement for selling a business, called the selling memorandum, a document employed to market a business by introducing vital information about the functioning of the company including financial status, products and services, management, employees, and the purchase price.
  • After you have primed your business to go up for sale, you are ready to list it with a broker or utilize some other method of marketing to inform possible buyers.

Things to Know When Selling a Business

  • Plan on potential buyers trying to negotiate a lower price for your business from your original asking price that was advertised, so make sure your price is accommodating enough to allow some negotiating.
  • When financing the purchase price of the business, it usually necessitates the presenting of a promissory note with a type of security agreement including some collateral offered to secure future payment of the promissory note.
  • California State controls the amount of interest that you are allowed to charge a buyer, so it would be a good idea to examine the California State usury laws that are made available by the California Attorney General.
  • If you are carrying a lease on office space that your business uses, your buyer will more than likely want to assume the lease, and that can be achieved with a sublease arrangement or you, your buyer, and the landlord can negotiate a new lease, so when the business changes hands, it doesn't have to move.
  • When the process of negotiating the basic terms with the buyer to sell your business is finished, you and the buyer will sign a document called a letter of intent, which summarizes the negotiated terms of the sale.

After getting a serious buyer interested in buying your business and he or she has signed a letter of intent and a confidentiality agreement, he or she will require a sufficient period of time to inspect the operation of your business to confirm that everything, as you had represented it, is legitimate. The inspection affords the buyer the chance to evaluate the physical state of your business, which includes the building, inventory, equipment, management, employees, financial records, company books, and legal contracts.

Further Questions About Selling a Corporation in California

The type of sale in which you choose to engage could influence your future liability to the buyer, so it would be smart to get advice from an attorney, who has experience in mergers and acquisitions for small businesses. Feel free to contact the attorneys at UpCounsel.com.

If you need help with selling a corporation in California, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies such as Google, Stripe, and Twilio.