Business Purchases & Sales

Pre-sale preparation and broker engagement

Most owner-operator business sales start months or years before the letter of intent lands. We work with sellers on the readiness audit: clean financials, organized contracts, a documented sales process, and any pre-sale entity restructuring that improves the tax outcome. Sellers structured as S-corporations or partnerships pass-through their gain to the owner under IRC § 1001; C-corporations face the double-taxation problem that often drives the asset-vs-stock structuring decision. Installment-sale treatment under IRC § 453 lets a seller spread gain recognition across years when the buyer is paying over time, but the election interacts with the rest of the deal in ways that surprise first-time sellers.

When a business broker is involved, we review the engagement agreement before it's signed. Brokers in Washington are licensed under RCW 18.86, and their fee structures vary; the listing agreement is binding paper that owners often sign without legal review. We watch for commission terms, exclusivity periods, and the broker's ability to bind the seller during negotiation.

Letter of intent and exclusivity

The letter of intent is the first paper a buyer and seller sign together. For closely-held business sales it matters more than its non-binding language suggests. The LOI fixes price, structure, exclusivity, the diligence window, and usually the broker's commission timing. We draft LOIs tight on the binding terms (exclusivity, confidentiality, expense allocation) and looser on the operational terms that diligence will refine.

Exclusivity (or "no-shop") periods typically run thirty to sixty days for sales in this size range. We watch for buyer-favorable provisions that quietly extend the deal timeline: automatic extensions, financing contingencies that effectively give the buyer free options, or earnest-money structures that don't actually commit the buyer to closing. For sellers, the broker's commission tail is often the most-negotiated LOI term: who pays, when, and what triggers a clawback.

Asset purchase vs. stock purchase decision

Most closely-held business sales close as asset purchases. The reasons run heavily in the buyer's favor: clean liability profile (no assumed past obligations), step-up in basis under IRC § 1060 (full depreciation and amortization going forward), and the ability to cherry-pick which assets transfer. Sellers structured as S-corps or LLCs face minimal additional tax burden on an asset sale; C-corp sellers face the entity-level plus shareholder-level double tax that often drives a structuring negotiation. S-corporations that recently converted from C-corp status also have to consider the built-in-gains tax under IRC § 1374.

Stock purchases happen when the buyer can't or won't recreate the seller's contracts, licenses, or customer relationships. State-issued licenses (liquor, healthcare, professional services) typically don't transfer with assets; the buyer needs the entity itself. We model the tax differential between the two structures early in the LOI process, because the seller's after-tax proceeds can swing 10 to 25 percent between asset and stock sale depending on entity type and basis. Corporate sales require board and shareholder authorization under RCW 23B.12; LLC sales require member consent under RCW 25.15.

Definitive purchase agreement

The asset purchase agreement (or stock purchase agreement, less common in this size range) is the controlling document. We draft to the structure. Representations and warranties get calibrated to what diligence actually found; disclosure schedules qualify them. Indemnification provisions carry caps and baskets matched to the price and risk profile, with escrow or holdback amounts running the survival period. Earn-out mechanics get drafted with the next year's disputes already in mind.

For closely-held sales, we also draft the non-compete (typically two to five years, state-bordering geography, scope of business that doesn't bleed into the seller's next venture) and the transition services agreement that spells out what the seller does for the buyer during the post-closing months. The IRC § 1060 allocation schedule gets negotiated alongside the purchase price: sellers prefer goodwill-heavy allocation (capital gain rates, amortizable for the buyer over fifteen years under IRC § 197), buyers prefer equipment-heavy allocation (faster depreciation). The allocation has to match between buyer and seller on IRS Form 8594.

Closing and post-closing transition

Closing day for a closely-held business sale is funds flow, signature pages, transfer documents, and the closing binder. If the prior six weeks have been thorough, the day itself is uneventful. The buyer wires funds, the seller signs the bill of sale and assignment documents, and the keys change hands.

The year after closing is where the deal-team work earns its fee. Working-capital true-ups (measuring inventory, accounts receivable, accounts payable, and cash against the LOI's working-capital target) close out in the first sixty to ninety days. Indemnity claims and seller-financing payments run through the survival period. Earn-out measurements arrive at the calendar boundary the agreement specifies, and the disputes follow shortly after. For owner-operator sellers, the transition often includes a defined consulting period where the seller works for the buyer; the engagement letter for that period gets drafted with the deal, not after. The owner shouldn't have to litigate the tail alone.