Face Challenges Confidently

7 Ways To Avoid Litigation When Selling Your Business

Wednesday, October 4th, 2017

Selling a business is not as simple as a handshake and a nod. There are multiple steps, any one of which could derail the entire process and expose you to litigation. The closer you get to selling your business, the higher the likelihood you could be subjected to litigation if the sale falls through. However, the threat of litigation should never prohibit a business owner from selling. Every business owner should understand the dangers of litigation as well as how to avoid litigation when selling their company.

Know the dangers of litigation when selling your business

It is likely that your establishment composes a substantial part of your income, especially if you are a small business owner. Therefore, litigation is an unacceptable expense that could not only ruin the sale of your business, but possibly endanger your company as a whole. For instance, consider that even if you win a lawsuit, you may not have enough money to pay for litigation expenses. Minimizing the risk of litigation should, therefore, be a priority for any business owner. Fortunately, there are some steps that you can take to avoid litigation when selling your business.

Maintain honesty, accuracy, and openness

Too often in business sales, one or both parties feel as though they are in a competition. However, simple honesty is one of the best policies for avoiding litigation. Contrary to popular understanding, you are not permitted to trick a buyer into purchasing your company, sell defective assets, or conceal material information from the buyer.

If you are honest and upfront about potential problems, you are far more likely to gain the trust of the buyer and avoid litigation. If, however, the buyer suspects you have tried to mislead them, it is unlikely that they will be interested in resolving the dispute outside of litigation.

Consider assembling a comprehensive business review before selling your company. The business review will outline the history, present state, and projections for your business. The results should acknowledge issues and lay out realistic steps that your company has taken to address them.

Expect extensive due diligence reviews

Due diligence is the investigative process undertaken by the buyer. Due diligence is generally considered protection for the buyer, but it is also protection for the seller. If the buyer conducts an extensive due diligence inspection and tries to nullify the sale, the seller is protected from potential litigation. In this situation, the buyer was given every reasonable opportunity to investigate the business. The final results should be included in the legal documents before the sale is completed.

Trust your team

One of the best ways to protect your company is with an excellent team of professionals. Selling a business is a team effort, so your accountant and attorney should be involved. If you are confronted with an unfamiliar issue, do not try to solve it alone. Professionals can help you avoid litigation or a cancelled sale agreement.

When hiring a lawyer or accountant, consider two potential issues. First, make sure they do not charge excessively high up-front fees. Second, look into their background to ensure that they are litigation-free. If these two standards are not met, it is a red flag that the professionals you are considering may undermine the sale of your business.

Keep detailed closing documents

The closing documents of a business sale can never be too long, too comprehensive, or too voluminous. These records should be thorough and as extensive as necessary. Never take anything for granted, and insist that everything be placed into writing at every step of the process.

Ignoring potential issues or pitfalls could result in expensive disputes in litigation. Whenever possible, address issues up front and during the negotiation phase. It is far cheaper to reduce an argument to an addendum to the contract than to fight it out in litigation.

Remember that confidentiality is vital

Maintain strict confidentiality when selling your business. This step does not prevent the buyer from suing you, but it does insulate your business from the potential fallout of a paused or a cancelled sale. Sale negotiations are delicate and even the hint of a sale could substantially damage your business through lost contracts, personnel, vendors, and clients. Insisting on strict confidentiality until the sale is complete can help keep every aspect of your business safe.

Hire experienced attorneys to avoid litigation

As you can see, selling a business comes with legal pitfalls and risks. If you are in need of experienced litigation Business Attorneys, contact the professionals at Brown & Fortunato in Amarillo, Texas today. You can reach us at (806) 345-6300 or visit us in person at 905 S. Fillmore, Suite 400, in downtown Amarillo. You can also Contact Us by email to learn more about our Practice Areas and how we can help you during the sale of your business.