How to Transfer Business Ownership? What To Know

Congratulations! You’re reading this because you’ve scaled some kind of business - maybe an eCommerce company or perhaps an app. Now, the time has come to plan your graceful exit.

But how do you hand over the reins of a business? After all, it’s a process that’s laden with intricate emotional, legal, and financial decisions.

Charting out a business transfer of ownership isn't just about paperwork; it's also about preserving the business legacy you've painstakingly built. Whether you are planning to transfer business ownership to a loved one or you’re in the market for an outside buyer, it’s important you understand the ins and outs of the entire process.  

In this article, we'll unpack the essentials along with the steps that underpin a successful change of business ownership. You’ll walk away with a roadmap to navigate this pivotal transition in your journey as an entrepreneur.

Related: 10 Types of Business Ownership: How to Choose One

Understanding the basics of transferring business ownership

When we talk about a transfer of business ownership, we're referring to the comprehensive process of passing the baton of leadership and control from one entity or individual to another. This process encompasses a multitude of intricate details that are imperative for a smooth and successful transition.

Exploring the paths of ownership transfer

When contemplating how to transfer a business to a new owner, it's essential to understand the various forms it can take:

• Selling to an outside buyer: This is when the business is sold to an individual or another company that was not previously involved in the business.
• Passing the business to family members: A popular option for small and family-owned businesses, ensuring the legacy continues within the family.
• Selling to existing partners or employees: A practical choice when there are individuals already involved in the business who are willing and able to take over.

Beyond an outright sale, there are also more unconventional methods of transferring ownership over your business. You could consider negotiating gradual sales terms with your buyer or transferring business ownership through a lease agreement.

How is ownership transferred in a corporation?

This is usually facilitated through the buying and selling of shares in your company. It’s also important to note that the transfer of business ownership within a corporation will often need to follow the regulations and bylaws set forth in the corporate charter. This can include pre-emptive rights, which give existing shareholders the first option to purchase the shares, maintaining control and stability within the corporation.

Legal and financial implications of a transfer of business ownership

Transferring business ownership is not just a matter of signing on the dotted line. There are significant legal and financial implications that come into play. 

From a legal standpoint, an ownership transfer agreement must be meticulously crafted to protect both parties. This includes outlining any warranties or indemnities and ensuring compliance with state and federal regulations. 

On the financial side, a business transfer can lead to changes in tax liabilities and the business's financial structure. These changes must be carefully considered and planned for to avoid any adverse consequences. A clear understanding of these implications is crucial for a smooth and successful transfer business ownership process.

Can You Transfer An EIN to a New Owner?

An Employer Identification Number (EIN) is linked to a specific business entity and its owner, so generally, you can't transfer it to a new owner. When changing business ownership, the new owner often needs a new EIN. There are exceptions, but you should always consult a tax professional for advice about your situation.

How to tranfer business ownership? 4 key steps

The journey of transferring business ownership involves a strategic sequence of steps. Following them meticulously ensures a seamless transition that aligns your goals and complies with all the necessary legalities. Let's break down these 4 pivotal steps in the transfer of business ownership.

1. Do preliminary evaluations

Start with a comprehensive evaluation of your business's worth. This initial step is instrumental in setting a realistic and fair price point for the ownership transfer.

The valuation of your business should take into account various factors, including: 

• Financial performance
• Market position
• Assets
• Future revenue projections. 

This evaluation will provide you with a clear picture of your business's strengths and weaknesses, allowing you to address any issues that might affect its value.

Once you have a solid understanding of your business's value, you’ll need to decide on a price point. This price should be competitive and reflect the true value of your business. 

Setting the right price is a delicate balance – price it too high, and you might scare away potential buyers; price it too low, and you might not get the return you deserve.

Fortunately, we here at Boopos offer expertise that can help with this step in the business transfer process. Use our Business Valuation Calculator to get an idea of what your company could be worth.

2. Find the right buyer

Finding the right buyer is perhaps the most critical step in transferring business ownership. A good fit will ensure a smooth business transfer and set the stage for the business’s continued success.

When looking for a buyer, you’ll need to do the following:

1. Create a list of potential buyers: Look within your network, industry, and even your own company. Sometimes the best buyer is closer than you think.
2. Vet potential buyers: Once you have a list, do your homework. Make sure potential buyers have the financial capacity and the right intentions for your business.
3. Keep confidentiality at the forefront: When discussing a business transfer with potential buyers, confidentiality is crucial. You don’t want word getting out and potentially affecting your business operations or value.
4. Negotiate the deal: Once you find the right buyer, negotiations will begin. This is where understanding your business’s value and having a clear price point is crucial.

Finding the right buyer can take time. But you’d  rather move slow than rush into a deal that’s bad for you and your business post-ownership transfer. Trust us when we say that your patience will be rewarded.

3. Draft the transfer of business ownership agreement

The transfer of business ownership agreement is a crucial document that outlines the terms and conditions of the sale. A clear and comprehensive agreement is vital to protect both the seller and the buyer during the ownership transfer process.

Include all essential details. The agreement should cover all aspects of the sale, including the purchase price, payment terms, and any contingencies or conditions that must be met before the sale can be completed.

Second, clearly define the roles and responsibilities of both parties. Your transfer of business ownership agreement must outline what is expected from both the buyer and the seller, including any post-sale support or training that will be provided.

Next, include confidentiality clauses. Confidentiality is crucial during a business transfer, and the agreement should include clauses to protect the business's sensitive information.

Finally, get legal help to put this all together. This agreement is a legal document, and it’s essential to have it reviewed by a lawyer to ensure it is valid and binding.

4. Execute

The final step to transfer business ownership is the execution - when the actual change of business ownership takes place.

Once all the agreements are signed, and the payment is processed, the actual ownership transfer procedures begin. This includes transferring all assets, updating licenses and permits, and modifying any contracts or agreements to reflect new leadership.

It's essential during this step to notify all stakeholders, including employees, customers, suppliers, and creditors, about the business transfer. Clear and transparent communication will help maintain trust and ensure a smooth transition.

Lastly, you must inform the state about the change of business ownership. This includes updating the business's registration information and any other required filings. Failure to do this could result in legal issues down the line.

Transfer business ownership with an experienced partner

Being well-informed and prepared is crucial to a smooth and successful business transfer. A change of business ownership is no walk in the park and requires a comprehensive understanding of many moving parts.

At Boopos, we understand the complexities involved in transferring business ownership and can guide you every step of the way. Our platform, which includes a directory of over 1,000-plus pre-vetted businesses, is designed to facilitate the needs of business owners like you looking to sell their companies.

Whether you’re just starting to explore your options or are ready to take the plunge, we’re here to help. Consider Boopos for your business-selling needs today.