How to Transfer Business Ownership

For many people, owning a business is the epitome of the American dream. However, it may eventually become necessary to transfer ownership of the business for a multitude of reasons. 

There are multiple methods through which this can be accomplished, all of which can help a business owner achieve their goals. 

Business ownership transfer methods.

There are a few different ways to transfer business ownership. The most common way is to sell the business to another person or company. If you own the business along with partners, you may reapportion ownership among the multiple partners. Another way is to gift the business to someone else. You can also transfer ownership through a merger or acquisition. In some situations, leasing the business may also be an option. 

When determining how to transfer business ownership, you should carefully consider the financial and legal ramifications for each type of transaction, according to the structure of the business. You may need to consult accountants or attorneys to ensure you are taking all of the appropriate steps. 

Selling a business.

If your business is private, then you can sell it to transfer ownership. This is the most conventional method of transferring ownership of a small business.

If you pursue this avenue, you will need to decide if you’re going to do an outright sale or owner financing. If the buyer needs to obtain cash or lender financing, the sale may take longer. However, there are risks associated with owner financing. For this reason, it is strongly recommended that you consult with professionals to determine which option is best for you. 

Reapportioning ownership among partners.

If your business is a general partnership or limited liability company (LLC) with multiple owners, you might decide to transfer ownership of your percentage to other partners. In this case, no matter how good your reasons for getting out of the business, you should be careful about sharing personal information with those involved. You may inadvertently end up putting yourself at a disadvantage when it comes to obtaining payment for your percentage of ownership. In most cases, you can choose to reapportion ownership equally among partners or transfer your rights to a limited number of people. 

Gifting a business.

You may choose to gift your business to another person in part or in whole. You can even avoid gift taxes by doing so slowly over time. Transfer of the business may also take place through a will to a beneficiary who is named specifically. Such a transfer would take place upon your death and would be legally binding. There are tax considerations for nearly all business transfers through gifts, even when done upon death via a will. 

Merging with another business.

A merger or acquisition occurs when another business takes over operations of your own through their own business. This can be beneficial if you have clients who need ongoing attention. The new company can continue to provide similar or identical products and services when the companies merge and your business is acquired. 

Leasing your business.

In a lease option, the lessee runs your business for the lease period. They typically take all or some of the profits. A lease period may also be short-term to determine if they can make the business run smoothly before officially buying it outright. A lease-to-purchase option may also take the place of a traditional sale format for business transfer. 

Business structure may affect ownership transfer.

While you can use any transfer method for all business structures, your business structure can affect details of the transfer, including operational, financial, and legal issues. 

Transfer of a sole proprietorship.

Since a sole proprietorship has one owner, the actual business is not sold. Instead, assets can be sold, and the former business may be dissolved as a result. The buyer can use purchased assets and liabilities to form a new business with its own business structure. 

Transfer of a partnership.

Some states require specific paperwork to declare ownership changes of partnerships. In many cases, an owner will transfer their percentage of a partnership either to an outside individual (typically with the approval of other partners) or to existing partners. There are also tax issues to consider when transferring ownership of a partnership. 

Transfer of a Limited Liability Company (LLC).

Transfer of an LLC would be similar to that of a partnership with many of the same considerations. However, when an LLC ownership changes, a new operating agreement is necessary. It must also be filed with the state, and other paperwork may be required. 

Transfer of a corporation.

When a business is incorporated as a corporation (typically a C-Corp or an S-Corp), shareholders are typically free to buy and sell shares of the company as they please. There are legal limitations in some situations. However, shareholder owners should carefully consider tax liabilities when transferring ownership. 

Considerations when transferring business ownership.

When you have decided to transfer the ownership of a business, you must consider many factors. The type of business structure will determine financial, legal, and operational details. If you have questions about transferring a business or accepting the transfer of ownership, you should speak with an accountant, business broker, or business attorney. You can also apply for a business loan from Lendio to achieve your small business goals.

_{Information provided on this blog is for educational purposes only, and is not intended to be business, legal, tax, or accounting advice. The views and opinions expressed in this blog are those of the authors and do not necessarily reflect the official policy or position of Lendio. While Lendio strives to keep its content up-to-date, it is only accurate as of the date posted. Offers or trends may expire, or may no longer be relevant.}