Are you thinking about a change of ownership of your company? If you are, start preparing now, even if you’re not planning to leave immediately. A change in business ownership can be a sensitive matter for employees as well as affect several aspects of a business. The transition process can involve both financial and emotional concerns as employees can be worried about how the change in ownership will affect them. Here are some basic steps to take so that the transition can go as smoothly as possible.
Different Ways a Company Can Change Ownership
There are several methods in which a business can change ownership. Family member transfer is one of the most common ways. Sometimes, in a family business, the owner passes on the “baton” to a relative, such as an adult child, spouse or sibling. The advantage of passing on a business to a family member is not having to pay gift taxes.
In other situations, business owners decide to sell their businesses because they want to retire. Another way a company can change hands is when a partner of a co-owned business decides to leave. Sometimes, a change in ownership occurs when a sole proprietor adds a business partner.
Explain Why You’re Selling the Business
When announcing to your employees that you’re selling the company, expect them to be initially shocked and panicky because it’s normal for workers to think their jobs are at stake. Therefore, it’s important to explain your motivation for selling the business or changing company ownership.
This helps to bolster confidence about the future of their company, in addition to addressing their concerns. Let your employees know if the change in ownership will impact their positions. In other words, create an atmosphere of honest communication during the final weeks before the transition takes place.
Invite Employees to Ask Questions
Usually, employees have a wide range of questions to ask their boss after hearing about a change in their company’s ownership. Besides calling a company meeting so you can answer questions, plan to meet with each employee, privately, within the next few days. Consider that some of your employees may be timid about asking questions in a group setting. Furthermore, they’ll probably need some time to let the shock of the change settle in their minds.
Create Business Documents and Get Professional Legal Counsel
You’ll need to create a transfer of business agreement. Without this document, a business and its assets and liabilities will not be able to transfer. Another business item that may be needed is a new Employer ID Number (EIN) from the IRS. This is required when a new entity is to be created. Moreover, be sure to change business documents that are filed with your state.
It’s a good idea to let a business attorney help you with all the required legal documents you’ll need because some things require specific details. Consider how an experienced and highly qualified attorney knows all the various complexities involved in business ownership transfers. You don’t want to make any mistakes or omit important steps.
Other Considerations and Warnings
- Since people don’t appreciate being surprised, it’s critical your employees stay informed and feel like they’re important in the transition process.
- Provide your employees with a timeline as to when the sale is to become public news. Give them a date, if possible, when you’ll be leaving the company.
- Contact your local, state and federal government, along with the regulatory entities to let them know your old business has ended.
- If your company is being renamed, make banking changes.
- Check the business laws pertaining to specific business ownership transfers for your state.
- Ensure that health insurance, pensions and other benefits are properly transferred to the new owner.
- Realize that your old business has to be liquefied, whether it’s a partnership, corporation or LLC, before the new owners can create the new business entity. You can’t dissolve your old company until your old business has been sold with everything being transferred into the hands of the new business owner.
- The steps needed for transferring the ownership of a company from one type of business to another type can depend on the kind of business entity.
When changes are made in a business ownership, the process can be extremely complicated and lengthy. This can be true for even the simplest of business transactions. That’s why you need a highly skilled, trained and experienced business attorney to walk you through every step. For a free consolation, please contact us.