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What to Expect When Selling Your San Diego Business

When selling your San Diego or any other California business, there are basically three stages in the process — sometimes a fourth stage if you have agreed to provide post-sale training or have agreed to other post-sale obligations. Here is what to expect when selling your San Diego business.

Selling Your San Diego Business: Contract Negotiation

Selling your San Diego business is a complex task. Businesses are complex, particularly if the business being sold is ongoing and successful. Businesses also have, potentially, many assets that must be included — or specifically excluded — from the sale including real estate, lease locations, key employees, intellectual property, customer lists, and more. Because of the complexities, it is likely that the sales contract will go through many versions and re-writes. This process might take a couple of months to complete.

Selling Your San Diego Business: Due Diligence

As the contract is finalized, the parties and their experienced and dedicated business lawyers move into what is called the “due diligence” phase. This is the stage where the buyer, in cooperation with the seller, accomplishes the following:

  • Reviews and verifies key information such as seller’s claimed annual sales volume and revenue
  • Obtains various third party approvals such as from a Lessor for a key retail location
  • Obtains various third party agreements such as agreements with key employees to remain
  • Seeks and obtains financing, if financing is being used
  • Obtaining permits, licensures, tax and department of labor ID numbers, etc., in the buyer’s name if needed

The seller and his or her attorneys also have various tasks such as clearing seller’s financing, obtaining regulatory approvals/clearances, closing out (or transferring) utilities and services, etc.

This is also the stage during which various problems are uncovered. For example, maybe the parties learn that certain assets cannot be sold because there is a competing claim to ownership, which cannot be settled. At that point, the deal might “die” because those assets are central to the deal. Or, maybe, everyone agrees to remove those assets from the sale with a price reduction or maybe there is some other resolution.

Selling Your San Diego Business: The Closing

In general, a “closing” is the physical sitting down and signing all of the closing documents. At the end of the closing, there is an exchange of money for keys/deed/bills of sale, etc. When that is completed, a sale is set to be complete and ownership has passed to the buyers.

In general, the site of the closing is a conference or meeting room; often at the office of the seller’s attorney. Sometimes, the business owns real estate and the real estate is being sold as part of the transaction. If that is the case, then often the site of the closing will be a meeting/conference room at a title company, which is providing insurance for the real estate part of the deal, and the sale will occur as part of the real estate escrow procedure. The location of the closing is not particularly important; it is something decided by the parties and is usually based on everyone’s convenience – who lives where, ease of travel, parking, etc.

When arriving in the conference room, the seller’s “people” take one side of the conference table and the buyer’s folks take the other. The attendees are usually the actual buyers and sellers, various attorneys for both, and often brokers or agents. If financing is involved, sometimes a representative from the bank is in attendance. If real estate is involved, then someone from the title company is present.

Always, there are stacks of paper on the table. Selling your San Diego business is a process of signing papers. If real estate is being sold, the document that transfers ownership is the deed. For other non-real property, the document is called a bill of sale. For transferring ownership of interests in corporate entities, various transfer documents are needed (such as signing over stock certificates). In addition to documents that transfer actual ownership, there are many other important documents to sign including:

  • Assignments of various contracts — leases, vendor contracts, dealership agreements, etc.
  • Corporate resolutions or other corporate documents, if applicable
  • Seller Noncompete agreement if agreed to
  • Employment agreements for key employee or for the seller, if the seller is becoming an employee
  • Contract(s) for any post-sale obligations by the seller, if any
  • Financing documents, if any, the buyer signs these
  • Closing statement, spreadsheet type document setting out the purchase price, fees, charges and setoffs

In addition, the lawyers often exchange a number of documents related to the sale such as:

  • Federal, state, county, and city transfer declarations and/or sale tax documents
  • Title clearance and title insurance documents if real estate is being sold
  • Tax clearance documents
  • Notice documents to tenants, government agencies, utilities, service providers, etc.
  • Attornment or estoppel letters, if applicable
  • Third-party consents to various assignments of contracts, a franchisor consent to the new franchisee, for example
  • Finance clearance documents, UCC waivers, for example
  • Judgment and lien releases and/or waivers
  • Dismissals of lawsuits, if applicable
  • And more

In terms of time, the closing itself takes only as long as it takes to sign, review, and exchange the documents and to transfer the purchase price from the buyer to the seller. If financing is involved, often final “Lender Approval” is needed before the transaction can “fund.” Practically speaking, this adds about an hour of time as someone from the bank needs to look at the closing statement and the buyer-signed financing documents. If all is in order, the lender says “okay” and a cashier’s check or wire transfer can be made to the seller and the sale is officially completed.

Selling Your San Diego Business: Contact San Diego Corporate Law

As can be seen, selling a business is a complex endeavor. You are going to need the help of an experienced business lawyer like Michael Leonard, Esq. of San Diego Corporate Law. If you are thinking of selling your business, contact Mr. Leonard today. You can email Mr. Leonard by email or by calling (858) 483-9200.

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Schedule a Consultation: 858.483.9200