Why You Should Review Your Important Contracts Before You Sell Your Business

caution

A company’s key contracts represent a valuable business asset. Thus, it’s crucial that the contracts remain in force as a business changes hands from the seller to the buyer when the business is sold.

As I’ve written elsewhere on this blog, the sale of a small business is usually structured as either an equity sale or an asset sale. In an equity sale, the buyer purchases the equity from the owner(s) of the company being sold (commonly referred to as the target company) — stock in the case of a corporation and membership interests in the case of a limited liability company. The business is transferred to the new owners, corporate or limited liability company entity and all, and the target becomes a wholly-owned subsidiary of the buyer. There is no change in the status of the target entity itself, and its contracts, assets, and liabilities remain with the entity.

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