As they say, all good things must come to an end. Maybe you'd like to retire, or maybe it's time to pass the family business to the next generation. For one reason or another, many business owners will face a time when they need to transfer their ownership rights to another person or entity.
Business owners have several options when it comes to transferring ownership rights. Be sure to consider all your options before making any decisions. Read the examples below to understand all of the options you have to choose from when you make the decision to exit your business.
An Outright Sale
Liz owns a local clothing boutique but it has not preformed the way she had hoped over the last year. With several other businesses on her plate, she can no longer afford to continue running the boutique. She needs a quick exit and quick cash. She may choose an outright sale of her business. By selling a business in full, you will transfer ownership immediately and receive payment for your assets right away.
A Gradual Sale
Bill owns a small food market near his home. After the birth of his granddaughter, he now spends most of his time at his daughter's home several hours away. Bill may choose to complete a gradual sale of his business. A gradual sale is a flexible option in transferring a business that tends to benefit everyone. After transferring business ownership, Bill no longer has to worry about running his business but is still receiving a monthly income from the gradual sale. This option often benefits individuals that cannot afford an outright sale, but instead are able to finance a long-term payment plan.
A Lease Agreement
Barbara has decided to take a year-long cruise around the world. To take care of her daycare center she's decided to transfer ownership to a friend through a lease. By transferring your business ownership through a lease, you'll commit to a contract that details the conditions and payments you'll receive for the temporary rights to the business.
The Family Business
Transferring ownership of the family business to a new generation is often more complicated than it sounds. Additional tax implications, such as estate and gift taxes, generally arise for both parties. Proactive succession planning can help provide business stability, prepare for tax obligations, and make the ownership transfer as smooth as possible.
The Type of Your Business Matters
As with many other regulated aspects of business ownership, the type of entity you own makes a difference. Your business type will affect what steps are required to transfer ownership as well as the tax implications of your transfer. For example, because Liz's business is a sole proprietorship she has total control over her business and therefore has full rights to complete a sale. The rules for partnerships, limited liability corporations, and corporations will require additional actions that are specific to their situation to complete a transfer of ownership. Because these steps tend to be situation-specific, it is very important to speak to a lawyer as well as local small business experts for advice.