The price at which a business or an ownership stake in a business is put up for sale.
I. The sale of tangible and intangible assets of a business without transferring ownership of the business.
ii. The sale of a business enterprise at a price based solely upon the value of the tangible assets.
The amount of an asking price which is not derived through and established valuation methodologies, and for which there is no economic consideration.
A Business Broker acts as the intermediary between clients and customers who desire to sell or acquire businesses. A business broker is committed to providing professional services in a knowledgeable, ethical and timely fashion. Typically, Business Brokers provide consultation to sellers and buyers, coordinate communications between the parties, and manage the negotiations and closing processes to complete desired transactions.
A person or organization to whom a Business Broker takes on a fiduciary responsibility.
An agreement whereby two or more Business Brokers cooperate in order to provide services, and share responsibility and compensation on behalf of a client.
A Business Broker who is involved in a co-brokerage.
Cooperating Business Broker
Business Brokers who cooperate to provide their knowledge, expertise and skills for the benefit of the business brokerage profession, clients, customers and the public good.
A person or entity which is a party to a transaction and receives services and benefits, but has no fiduciary relationship with a Business Broker.
The income of a business before the following items are deducted:
• Income taxes
• Non-operating income and expenses
• Non-recurring income and expenses
• Depreciation and amortization
• Interest expense or income
• Owner’s full compensation for services rendered, which could have been provided by a sole owner/manager.
A clause entered into a note and/or security agreement, which gives the lender the right to demand payment in full, in the event of certain occurrences, such as default or a change of ownership of the business to which the lender does not give his consent. This may be referred to as a "due on sale" clause.
The communication of assent to an offer, which results in a legally binding contract.
A declaration, by a person qualified by law to administer oaths, that the person signing a document or a deed is the person they claim to be.
A piece of writing that adds some detail(s) to a written contract.
Also known as an "Exclusive Agency Listing". A document that gives an agent the right to sell property for a specified period. An Agency Listing does not prevent an owner from selling the property by themselves, without paying a commission to the agent, so long as the buyer was not introduced to them by the agent.
A person or entity authorized to act to achieve business objectives on behalf of another person or entity known as the principal. An agent has the responsibility to act in the best interest of their principal, as well as provide them with accurate, timely information.
A breakdown showing the different components of the purchase price when a business is sold. For example, the allocation might contain a breakdown of the inventories, fixtures and equipment, leasehold improvements, goodwill, and any other purchased assets. Generally, value is placed on each component of the allocation and the buyer and seller agree on this breakdown. The IRS requires that such an allocation be a part of the buyer's and seller's tax return when a sale takes place; Form 8594, the "Asset Acquisition Statement", must be filed with the buyer's and seller's tax return for the year in which an applicable asset acquisition takes place.
A written instrument that provides changes to a previous agreement. (This differs from an addendum).
- Reducing the amount of a debt obligation by making periodic payments covering interest, and part of the principal.
- The process of writing off or expensing of the cost of intangible assets over a period of time, usually in years. Amortization of intangible assets vs depreciation of tangible assets. Intangible assets purchased, such as goodwill and covenants-not-to-compete, can be written off over 15 years.
Increase in value for any reason. Usually, real estate is an asset that appreciates in value over time.
The process of resolving a matter of dispute without going through the courts system. This process is often faster and more cost-efficient. An arbitration award is legally enforceable in court. If the parties cannot agree on a single arbitrator, they can select arbitrators under the rules of the American Arbitration Association (AAA). Frequently, arbitration clauses are inserted into contracts, to stipulate arbitration as the means for settling disputes arising out of the contract.
The process of selling a business, in which the buyer acquires some or all the assets of the business (and possibly assumes some liabilities). Unlike a stock sale, the buyer obtains the assets usually free and clear of any liabilities of the seller. The buyer also gets the advantage of a "step-up" in basis on the assets purchased based on their allocated fair market values.
A written document of transfer of an interest in property or other assets, from a person or entity to another.
A person or entity, appointed in writing, to execute a specific act on behalf and in place of another, e.g. signing documents for someone in their absence.
The minimum rent amount stated in a lease, which may provide for additional rent.
Bill of Sale
A document by which a person or entity transfers their interest in goods and property to another.
The portion of a business’s selling price that reflects the valuation of its intangible assets such as goodwill.
A financial liability contingent on ones inability to fulfil other obligations such as proper use of property or management of funds. Usually written by a company for a fee. Also known as a Surety Bond.
Breach of Contract
The failure of a person or entity, to perform some or all of their obligations under a contract to which they are a party.
A person who acts on behalf and in the interest of a person or entity referred to as his/her principal, in negotiations with third parties. This arrangement falls under "agency" law applicable in the state in which the principal - agent arrangements arises.
A transfer in bulk of all or substantially all of the inventory and fixtures of a business which is not in the ordinary course of business.
Bulk Sale Act
Laws put in place by the states to protect creditors against clandestine sales of all, or almost all of a business's goods. It requires certain notices prior to the sale and sets forth ways of voiding the sale (see Uniform Commercial Code). NOTE: No longer required in New Mexico since 7-1-92; however, each state has its own Bulk Sales laws.
Business Trade Name
Business name by which a certain company is known.
A clause written into a lease or other contract stipulating the condition(s) under which the contract may be canceled or terminated by any of the parties. It may provide for simple notice or compensation to cancel the contract.
A check drawn on the funds of the bank itself. Frequently, it is used to close a sale, since it would not be necessary to wait for the check to clear.
Latin i.e. "Let the buyer beware".
A personal check backed by the bank. The bank holds the necessary funds and will not process any withdrawals against the certified amount. The bank also will not usually honor a stop payment on a certified check.
Chattel (U.C.C.) Search
A chattel is an article of personal property and it includes both animate and inanimate property. U.C.C. stands for the Uniform Commercial Code which governs the granting of security agreements. A chattel search is a review of the appropriate county and Secretary of State Records in regard to any liens against chattels, tax liens and judgments.
Where a mortgage is taken out on personal property (not real estate), this is referred to as Chattel Mortgage.
An important element that is required for a contract to be considered legally enforceable: Consideration is the promise to give or do something of value in return for the fulfilment of a promise.
An agreement, voluntary in nature, between two or more parties, by which the parties undertake legally binding obligations to each other. Elements of an enforceable contract include: (a) an offer to be bound to do or refrain from doing something, which has been accepted, (b) sufficient consideration, (c) a valid subject matter, (d) legal capacity of the parties, and (e) for those contracts to which the Statute of Fraud applies, its requirements must be met.
A transfer of title.
A business entity created by or under the authority of the laws of a state, composed of individuals united under a common name, and which for certain legal purposes is considered a natural person. Characteristics of a corporation include: (a) continuity of life, (b) centralization of management, (c) limited liability, and (d) free transferability of interest.
A normal corporation for federal income tax purposes. The entity itself pays income taxes.
The moment in time when all the details of the business sale are completed and the funds are distributed to the seller, seller's agents, creditors and others.
The legal documents which are necessary during a business closing. They might include: a definitive purchase contract, promissory notes, mortgage, security agreements, financing statements, subordination agreements, bill of sale, covenant-not-to-compete, consulting agreements, employment agreements, leases, assignments, escrow agreement, releases, tax clearances, director and shareholder consents, legal opinions, environmental opinions, fairness opinions, and IRS Form 8594 Asset Acquisition Statement.
A statement which contains the financial settlements between the buyer and seller and the cost each must pay. They may be on one statement, or the buyer and seller may each receive separate ones.
The practice of mixing the funds belonging to a buyer or seller with those of an agent in a so-called "trust account". This is illegal in most places and may result in the loss of license for brokers who get caught.
Conditional Sales Contract
This is different than a chattel mortgage. Title to the goods, fixtures and equipment or the business itself is not transferred to the buyer, and remains with the seller, until the terms of the contract have been met. This generally means when all the payments have been made.
An agreement inserted into a purchase contract, by which the seller undertakes not to enter into a similar or competing business, for a specified period of time, within a designated area.
A person to whom a debt is owed by another person who is called the debtor.
"doing business as" - an identification of the trade name of the business, which may differ from the legal corporate name.
A promissory note without a set period for repayment, and can be called due by the holder at any time.
People who are elected by the stockholders to manage the affairs of a corporation. Shareholders elect directors; directors elect officers; officers manage the day-to-day affairs of a corporation.
A statement that absolves an individual or entity of liability in the event information is inaccurate.
The state of being unlawfully coerced to perform some act against one’s will.
A sum of money given to bind an agreement or an offer.
The "profitable" life of fixtures and equipment or any improvement; this life could be greater or less than the depreciable life for income tax purposes.
A clause, generally found in a lease agreement that makes provision for an increase in the rent at a specified time.
A deed, a bond, money or other piece of property entrusted to a third party, for delivery to the grantee only upon the fulfillment of a condition.
Exclusive Right to Sell Listing
A condition whereby a Broker or Agent has the sole authority to sell a business. The Broker or Agent receives a commission no matter who eventually sells the business - even if the seller finds the buyer during the listing period. (See Agency Listing)
To complete, to make, to perform, to do, to follow through; to execute a contract; to make a contract: especially signing, sealing and delivery.
The name of a business. In most areas, this name is filed with a state county or local government agency to be legally effective.
A relationship or position of trust, usually regarding the financial responsibility of an agent or person acting on behalf of another.
A recorded document filed generally in the secretary of state's office of the state, showing that there is a lien against the fixtures and equipment (personal property) of the business.
The authority to sell a company's goods or services in a particular geographic territory, using the name and trademark of the franchisor.
A type of lease agreement that stipulates periodic increases in rent payments.
(Also referred to as "Tangible Assets") Those assets, belonging to a person or entity, which are material or physical in nature (e.g. inventory, equipment, tools, vehicles, real estate, leasehold improvements).
Payment to provide recompense for damages or loss.
A written legal document, whose existence establishes and gives effect to the rights of the parties to an agreement.
The class of assets which have no physical existence but represent value, such as goodwill, going concern value, business trade name. (See Blue-Sky)
Permanent: Incapable of being recalled or canceled; unchangeable.
Same as Tenancy in Common, but if one party dies, his or her title passes to the other surviving joint tenant(s), and not to the heirs of the decedent.
A business arrangement for the purpose of executing a single project. Differs from a partnership in that partnerships are ongoing, whereas joint ventures are terminal.
A written instrument by which a property is handed over by the owner (lessor) to second party (lessee) for a specified time and for a specified rent payment, and stipulating the terms and conditions upon which the lessee may use and/or occupy the property.
Lease with Option to Purchase
A lease agreement which grants the lessee the right to purchase the property for a stipulated price, upon fulfilment of certain conditions.
A property held under tenure of lease; a property consisting of the right of use and occupancy by virtue of a lease agreement; the lessee's (tenants) interest in a lease.
Any article or fixture that is attached to land or buildings.
The legal identification of real property.
A person or entity who has acquired the right to use or occupy a premises, by virtue of a lease.
Otherwise referred to as the landlord; the lessor is the person who legally grants the lessee the right to use or occupy premises by virtue of a lease.
Letter of Intent (LOI)
A description of the key points in a potential acquisition of a business. The purpose is to ensure that all parties are in agreement on salient points, and is not usually designed to be legally binding on any party. Examples of the key points that buyers and sellers would usually want to come to a general agreement on often include: stock or asset purchase, purchase price, down payment, seller financing terms, liabilities assumed, covenant-not-to-compete terms, consulting/employment agreement terms and real estate lease terms.
A claim or charge upon real or personal property for the satisfaction of some debt or duty which can arise either by agreement or by operation of law.
A partnership composed of some partners whose contributions and liabilities are limited. A limited partnership must have at least one general partner and one limited partner. The general partner(s) are responsible for the management and liability for its debts. A limited partner has no right in management and his/her liability is limited to the amount of their investment.
The formation of a single company by the combination of two or more previously existing companies.
A statement which is false. If the statement or action is made with intent to deceive, it may be deemed to be fraudulent.
A legal instrument by which real property is pledged to secure a debt or obligation; a lien on real property.
Failure to discharge one’s known duties, particularly where harm may occur to others as a result.
Capable of being negotiated; assignable or transferable in the ordinary course of business.
Net-net-net Lease (Triple Net Lease)
A form of lease agreement in which the tenant (lessee) pays a prorata share of normal property expenses such as real estate taxes, insurance, maintenance, etc., thereby assuring the landlord (lessor) of a fixed income.
A set price, expressly agreed upon by the principal and agent, below which the property will not be sold, and at which price the agent will not receive a commission; the agent will only receive any amount in excess of the net listing as his/her commission. It is important to note that this type of commission is unlawful in some states.
A deduction by one against a claim of another; e.g. unknown claims against the assets purchased by a buyer may be "offset" against the obligation the buyer owes to the seller (seller financing).
Unlike an exclusive listing, an open listing allows any number of agencies to market and sell a property. Only the agent or agency who successfully executes a sale will get a commission.
A written instrument granting a party the exclusive right—without obligation, within a set period of time, to buy or obtain control of property or assets on specified terms.
A business form, which is not a corporation, in which two or more persons who join together to contribute to the capital and/or operations, and share the profits and losses (also, see Limited Partnership). Partnerships must lack two or more of the four corporate characteristics (see Corporations) to be taxed as such.
Any property which is not real property; that which is not permanently affixed to the land.
In the language of the loan business, a point is one percent of the amount of the loan.
Power of Attorney
A written document granting a person the right to act on behalf of the person granting it. A general power of attorney authorizes an agent to act generally on behalf of his/her principal; a special power of attorney limits the agent to a specific or particular act.
The person or entity on whose behalf an agent acts. Also, a sum of money owed excluding any accrued interest.
A signed, written instrument which acknowledges a debt, with the promise to pay the debt on specified terms (i.e. payment amount, payment date(s), interest rate).
The division of money obligations according to some formula. In a business closing, a seller may have paid for certain benefits into the future which are assumed by the buyer. The cost of these benefits are "prorated" between the seller and the buyer as part of the closing statement (e.g. prepaid rent, prepaid advertising, security deposits).
The agreement setting out the terms for the purchase of a business. A purchase agreement is the "road map" followed by the buyer and the seller in a business transaction. It would include items such as a description of what is being purchased, the down payment and repayment terms, buyer and seller representations, warranties, and indemnifications, and so on.
The relinquishment of some right or benefit by a person or entity who already has some interest or right therein.
A small business corporation which is treated differently than a C Corporation for income tax purposes. Normally, it can be used by a corporation with 75 or fewer domestic shareholders when the corporation has only one class of stock. Individuals, another S Corporation, estates, certain trusts, certain financial institutions and tax exempt organizations may own shares in an S Corporation. An S Corporation may own 100% of a C Corporation. If all the statutory requirements are met, the shareholders can elect to have most of the corporation's income and deductions flow through to the shareholders in a manner similar to the taxation of a partnership.
The agreement given by a debtor to a creditor giving the creditor a resource to look to in case the debtor fails to pay the principal obligation.
The interest on principal only as compared to compound interest, which is interest on both principal and accumulated interest.
A business owned by one person or married persons. The owner is personally liable for the debts of the business. The business is not incorporated.
Statue of Frauds
State law which provides that certain contracts must be in writing in order to be enforceable by law; e.g. the sale of real property, a lease of real property for more than one year, broker's authorization to act as an agent on behalf of his/her principal.
The buyer purchases the stock in a corporation so the corporation is acquired in whole and the buyer obtains all assets and liabilities. Buyer gets no step up in basis in the underlying assets in the corporation (unless a not often used tax election is made).