As a small business owner, it is in your best interest to behave in an ethical manner throughout all aspects of the day-to-day operations of your business. This is important if you want to keep clientele, keep a good reputation, and keep your doors open.
This need for ethical behavior comes into sharp focus if you are trying to sell your business because behaving unethically, especially in your disclosures to a buyer, can not only kill a deal, but wind up in the middle of a lawsuit.
So what steps can a seller take to remain above board during the business transaction and ultimately protect them from litigation? Here are a few options:
First, hire the appropriate professionals. Liability can hide anywhere within a business transaction, so if you try to go it alone you risk walking into liability trouble you didn’t know was there. An experienced business broker can be instrumental in avoiding legal pitfalls, as they should know where some of the liability dangers are. You may also need the services of an experienced business transaction attorney.
Second, be open and honest with your books. Your financial “dirty laundry” will be aired out during the due diligence phase of the business transaction, so it is important to be honest during this phase. You may be liable if you disclose inaccurate financial information, or even if you choose to not disclose issues with your business. It is important to realize that any inaccuracies or misrepresentations will likely be discovered, and if they are, you risk a lawsuit.
Third, be sure that you put everything important in writing and that you read absolutely everything you sign. If you find yourself in a lawsuit, having written records will be instrumental in proving that your hands are clean.
Lastly, if you have any investors or partners, you will all need to be on the same page before you bring a buyer into the mix. It sometimes happens that one business partner will feel that the sale has benefitted one partner at the detriment of the others, and this can lead to legal liabilities.
If you are looking to sell your business, and have concerns about the ethics of a business transaction, please leave us a question or comment here and we will be happy to answer your concerns.