Important Tips for Potential Sale of Your Silicon Valley Business: Part 2

December 21, 2021

You have done some research, and you think now is a good time to list your business for sale. You have spoken to a real estate agent familiar with commercial sales. You have staged the business, you have a list of assets, liabilities, vendors and a firm understanding of your business’ operating expenses. What else is left to do? Depending on the nature of your business, you may need additional legal documents including an asset purchase agreement and a security agreement. You may also want to consider signing a confidentiality agreement with potential buyers.

A seller may want to draft a confidentiality agreement with potential buyers. While not always necessary, if the sale involves the transfer of proprietary and confidential information, or trade secrets or if the terms of the sale are confidential, a confidentiality agreement can protect both parties involved. A seller should not disclose any information about the potential sale of their business, including purchase price, until they obtain a signed confidentiality agreement or non-disclosure agreement. Doing so can compromise a potential sale or the potential purchase price.

An asset purchase agreement is a contract between entities negotiating the items subject to sale. An asset purchase agreement may include the purchase of inventory, fixtures, or real property. Agreement usually comes with transfer of additional warranties including personal property, fixtures or real property. The sale of a Silicon Valley business may also include the transfer of the name of the business, trade name or trademark associated with it. The sale may include transfer of the business phone number, fax number, and internet domain, especially if the buyer intends to continue to use the business for the same purpose. Without this transfer, it can be difficult to effectuate a seamless transition and attract new customers. For the purchase of a restaurant or bar, often the most difficult item two transfer is the liquor license, but it is crucial to the viability of a purchase. Usually, cash on hand and receivables are not included in the purchase agreement.

Usually, a purchase agreement may also include a clause indemnifying the seller from liability if the purchaser should enter the property prior to closing without notifying the seller. There may also be a study period, during which inspections, appraisals, and settlement takes place. The seller and buyer may negotiate a clause giving the buyer the option to cancel the sale within a certain period. These provisions are only a fraction of what may be included in an asset purchase agreement, especially if more than one parcel of real property is up for sale.

Negotiating a business sale is not an easy feat. Beyond understanding the market, finding the right time to list, and finding a worthy buyer, there are legal implications to consider. To ensure you cross your I’s and dot your T’s, you should speak to a seasoned corporate attorney. Our lawyers at SAC attorneys specialize in all aspects of business formation, litigation, and asset purchase sales. We can walk you through each step of the process. We serve businesses throughout San Mateo, Santa Clara, and San Jose Counties. Call today to schedule a comprehensive consultation.