Procedure for Change in the Ownership of a Sole Proprietorship

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Selling a sole proprietorship requires more than a simple handshake
Selling a sole proprietorship requires more than a simple handshake

A sole proprietorship is a business owned by an individual or couple and not organized into another legal entity or form. All business assets are held in the name of the owner. Selling a sole proprietorship can be more difficult than selling a business registered as a corporation or partnership.

Attorneys

The first step in selling your sole proprietorship is consulting an attorney. An attorney can tell you the best process for your jurisdiction and help you define what assets should be included with the sale. The attorney can help you define the documents and contracts that will need to be drawn up and signed by both the buyer and the seller. Each party, the buyer and the seller, should, at minimum, have the final sales documents reviewed by a competent attorney.

Assets

Because all assets in a sole proprietorship are owned by the business owner, not an umbrella business entity, the attorney can help you understand which assets need to be transferred with the business. Examples of business assets that would likely transfer are cash registers, store fixtures and existing stock. Gray areas include things like computers that are used both for personal and business use or personal items that have been used in the business. An example of a personal item that might have been used in a business is artwork used for decoration. The buyer may view these as business assets, but the seller may view them as personal.

Contracts

The sales contract should cover all aspects of the business and should be drawn up by an attorney. In many cases, an accountant will be helpful in establishing the value of each asset. For tax purposes, each asset is treated separately. The existing liabilities also need to be defined. Some liabilities, such as business loans, will transfer with the sole proprietorship. However, liabilities that are attached to assets not transferred in the sale will likely remain with the seller. Part of writing and defining the contract should include contacting the department of revenue in your state to ensure that all tax liabilities transfer with the business.

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