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Negotiating Business Deals/buy/sell S-Corp to LLC

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Question
Hi Jacob,
The situation is a small wine making supply hobby store with annual revenue of 20k.

Ive been a customer for a couple of years and the owners health and finances are failing, so Im going to buy the business.
I did the diligent thing and hired an attorney to give me some advice as to how to go through with the buy/sell.
I just received her fee schedule and its more than the business is worth. So this is no longer an option and were on our own.

The seller and I have been friendly and he plans to stick around until I get the hang of running it. The problem is when he started this as a hobby he registered it as an S-Corporation with 100s that he owns all of, in the name of 77th and Vine.

I want it to be an LLC and I want the name to be The Wine Store, 77th and Vine.
How do we do this?
USA MA

Answer
Dear Randy,

It's actually pretty easy to transfer a business from one legal entity to another by structuring an assets sale. It means that you won't be buying stock of the holding S-Corp, but rather all tangible and intangible assets that the business owns, including its trade name and DBA.

You have to form your own LLC and LLC will be buying assets from the seller's S-Corp. The terms of sale should be finalized in fully executed Business Assets Purchase Agreement. It can be a free-form document, however, I wouldn't suggest to write it on a napkin. You can probably find a free sample on the Internet, or buy a template from one of the websites that sell legal documents to the public.

I don't know rules in MA, but in CA such transaction has to be processed through escrow as a bulk sale. You'd have to find an escrow company that can process bulk sale transactions (not all escrow companies do) and check about rules in your state. Escrow officer will provide with necessary escrow documents, explain closing costs, etc. While in escrow, you'll contact the landlord and arrange for assignment of the lease. Lease assignment docs should be submitted to the escrow. At close of escrow, your LLC becomes legal owner of the business and you can file new DBA with county clerk, or another government entity that handles business registration in your state. You'll transfer utilities in your name, get insurance and everything else what's needed to run this business.

Now the fun part starts - working long hours trying to become a success.

I hope it helps.
Jacob Berenfeld
Global Business Group

Negotiating Business Deals

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Jacob Berenfeld

Expertise

Selling a small business, buying a small business, preparing business for sale, small business appraisal (valuation), exit strategy planning, business coaching.

Experience

I am a business broker with over ten years of experience helping small business owners to sell their businesses. I am a small business owner myself, managing partner with Global Business Group - California business brokerage firm.

Organizations
BIR Business Brokers Network

Publications
You can see my articles at Small Business Blog, http://www.gbgusa.com/small-business-blog.html. You can also read my discussions and answers on www.linkedin.com.

Education/Credentials
MS in Electronics, licensed California business broker.

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