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How Do I Sell My Business Without Getting Sued

Sellers wondering: how do I sell my business without getting sued, usually expect to pay high legal fees to get all the required answers. But there are ways to substantially reduce the risk of legal liability when selling a small or mid-sized business without a lawyer. They include:

1. Be careful about what is claimed. Most lawsuits initiated by business buyers against the former owner are for misrepresentation. Complaints usually state that a). seller made claims about the income, or other benefits of owning the business, that b). buyer was persuaded to make the purchase by those claims, and that c). what seller said was not factual. The buyer then totals the losses incurred because he or she relied on the seller's misrepresentations, and asks the court for reimbursement of those losses, and also to impose a penalty on the seller for having defrauded buyer.

Sellers are cautioned that the best way to answer the question about, for example, the amount of money to be made, is to explain his or her experience, supported by P&L reports, followed by the statement that there are no guarantees the buyer will have the same experience.

2. Be careful about what is not said. The other side of misrepresentation that can land a seller in court is the claim that the buyer was not told about a factor that negatively impacts the business. The buyer might argue that the seller knew about, for example, the impending loss of a major customer, or plans for a larger company to begin competing with the business being sold. And failed to disclose the information.

One important strategy to learn, for the seller who wants to know how do I sell my business and stay out of a lawsuit, is to be sure the prospective buyer is provided information regarding any changes that the seller knows about, which might occur after the buyer takes over, and may be detrimental to the business.

3. Put statements in writing. Even following the ideas about using caution regarding what is said and what is not said, there can be a dispute if a buyer has a different recollection about the discussions with the seller on these issues. That's why a smart seller puts in writing any claims made about the business and any disclosures of factors that might impact it; and requires that the buyer acknowledge with his or her signature, what was discussed.

One agreement might contain a list of the financial reports, capital assets list, company description and related materials that were provided by seller to the buyer. Included also would be a statement that the buyer agrees that no representations were made by the seller other than the information contained in the documents listed. A second document could list all disclosures made by the seller to the buyer. The seller's statement would assert that the seller knows of no other circumstances that might negatively affect the business. That would require the seller's signature. Another statement on that document, that all items listed were, in fact disclosed to the buyer, would need the buyer's signature.

4. Accepting one offer at a time. Another possible area of legal dispute occurs when there are multiple offers and the seller isn't careful about his or her response. Once an offer is accepted the seller should work with the buyer to deal with any contingencies so the agreement can be satisfactorily completed. Any acceptance of back-up offers should be made with the clear, written understanding that they are in back-up position, with explanation of what circumstances--such as non-performance by the buyer who made an offer that was accepted--would give the back-up buyer the right to purchase the business.

5. While these measures will aid the entrepreneur who wonders: how do I sell my business without getting sued, it's not recommended that the seller avoid legal assistance entirely. It's best to have all documents - including the "claims" and "disclosure" agreements - reviewed by a business attorney whose assignment is to make sure the seller is protected, legally, by the business sales contract. That should be done before escrow is opened.

There's always some risk entering into a business sales agreement; most any contract, for that matter. For the seller asking: how do I sell my business without getting sued, the solution is to be careful about what's said and not said, and get those statements in writing.

About This Contributor: Peter Siegel, MBA is the Founder & Senior Advisor (ProBuy & ProSell Programs) at BizBen.com (established 1994, 8000+ California businesses for sale, 500 new & refreshed postings/posts daily) working with business buyers, business owners/sellers, business brokers, agents, investors, & advisors). Phone him at 925-785-3118 to discuss strategies regarding buying, selling, (or financing a puchase of) California businesses.


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Helpful Resources To Assist In Selling And Buying California Businesses
Brad Steinberg, Business Broker: Laundromat Specialist

PWS is the leading laundromat broker in California. Since 1968 PWS has brokered over 2,500 laundromat sales. With over 90 employees dedicated to the coin laundry industry, PWS has 18 licensed agents, a 3 person in-house finance department, 10 service technicians and a 20 person parts department.

Janet Carrera: Escrow & Bulk Sale Service - SF Bay Area

Redwood Escrow Services, Inc. is a full service, licensed independent escrow company. We are EAFC Fidelity bonded, fully insured & licensed with the Department of Corporations. Committed to offering our clients the most comprehensive variety of escrow services available. Phone Janet at 510-247-0741.

Diane Boudreau-Tschetter: Escrow & Bulk Sale Services - CA

California Business Escrow, Inc. is a full service independent escrow company serving all of California and has expertise in a wide range of escrows. Our team prides itself on providing an exceptional escrow experience. For more info phone Diane Boudreau-Tschetter at 888-383-3331 or 209-838-1100.

Helen Yoo, New Century Escrow - Escrow Services In Southern California

New Century Escrow, Inc. is a fully licensed & bonded independent escrow company. Over 20 years combined experience in handling bulk escrow transactions. Multi-lingual staff that speaks your language, including Korean, Chinese, Vietnamese. Call Helen Yoo direct at 626-890-1151.

Elizabeth McGovern: Escrow Services - San Francisco Bay Area

McGovern Escrow Services, Inc., is a leading independent escrow company. We are a trusted partner with our clients, assisting them through the tangled bulk sale & liquor license transfer process. We provide attentive, quality & innovative customer service. Phone Elizabeth McGovern at 415-735-3645.

William F. Ziprick, Attorney: Legal Services For Buyers And Sellers

Through creative problem solving, attention to detail, accessibility, & understanding that unnecessary delay is often a deal killer, I work closely with my clients and other professionals to consistently achieve a high rate of closings. Office: 909-255-8353, Cell: 509-951-7230.

Shalonda Chappel: Escrow & Bulk Sale Services - Southern California

Escrow services to brokers/agents, sellers, & buyers. Established 43 years. Extraordinary service. Experienced with handling difficult transactions. One stop for all your escrow needs: Bulk sales, lien searches, UCC searches, liquor license transfers, publishing & recording services. 951-808-3972.

Willard Michlin, CPA, Certified Fraud Examiner, Due Diligence

Willard Michlin, CPA #106752, offers buyers step by step training & assistance in doing Due Diligence Services when they are thinking of making an offer, or are in process of investigating a business purchase. He helps to determine the actual net profit even when there is cash. Call 805-428-2063.


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