If you have a business and are thinking of retiring or moving to a different venture, you may be considering passing your company on to one of your children or another individual.
The legal aspects of transferring ownership can be complicated due to state and federal laws as well as tax consequences. When considering transferring your company to another individual or entity, the first step is to consult an attorney with experience in business law.
If you are in a position where you need to exit your business due to lack of performance, leaving you in a position where liquidating is your only option, an outright sale may be the appropriate choice. When you sell a business in full, ownership will immediately transfer to the buyer and you will receive payment in full.
If you do not need the cash right away and prefer receiving steady payments, the gradual sale is an option to transfer ownership. This method tends to be more flexible and is typically beneficial to both you and the buyer.
With the gradual sale, the buyer does not have to purchase the business outright, but instead pays you monthly. Meanwhile, you are no longer involved in the business and are free to pursue another venture or fully retire.
Choosing a lease agreement
Under the lease agreement method, you will commit to a contract that details the conditions of the lease, including payments you will receive, for another person’s temporary rights to the business.
Using a lease agreement can possibly result in a breach of contract, therefore it is important that you know what constitutes a breach.
Transferring to a family member
You may think that the easiest option is to transfer ownership to one of your children or grandchildren. Unfortunately, transferring between close family members gives rise to additional tax consequences such as estate and gift taxes.
Planning ahead to transfer ownership to a successor will give both of you time to plan for any tax liabilities and it will ease the complication of the exchange.
If you have a business and you are considering transferring ownership to another person or entity, it is important to understand the legal aspects of the transaction.