Five mistakes that could make it impossible for you to sell your business
1. Fuzzy ownership of intellectual properties can be a sinkhole. IP legal contracts apply to the work created by internal employees, but don’t forget to include the external and independent consultants’ work. Jim Balsillie spoke recently at the Empire Club in Toronto with Jacquie McNish and Sean Silcoff, two Globe and Mail journalists who wrote about the fall of BlackBerry (formally RIM) in Losing the Signal. Balsillie’s big takeaway is that the failure to secure intellectual property will be the critical downfall to a Canadian company’s value, and he shared how much it hurt Blackberry behind the scenes as well as publicly.
2. A lack of shareholder agreements with minority owners that permit majority shareholders to force a sale will be an issue. Often, the minority shareholders could prevent a sale and this will take up time and resources to resolve.
3. Share issuance to outsiders – such as former employees and advisers who are no longer on the scene and difficult to contact – will make the buyer concerned that they will not be able to buy the whole company. For startup technology firms in particular, it pays to have contracts to advisers and early employees done by lawyers who know the issues that can occur years into the future. Employees can be forced to sell shares upon leaving the company.
4. Former employees bearing a grudge may see the sale as the time to make their case public. Also, with online forums that encourage people to “Rate my Employer” former employees can make all sorts of claims. One company that placed advertising globally had just one bad comment on an online rating forum, questioning if the business was running a scam. This went unaddressed but was picked up during a simple Google search, raising just enough of a red flag and the buyer walked.
5. Real estate assets being mixed in with the holding company. When it comes time to sell the business, perhaps the real estate is not to be part of the sale. Instead, a common strategy is to keep ownership of the real estate. Sometimes the new owner might even lease the real estate, but a lack of separation of the real estate from the holding company will make this difficult to do.
Facing up to these five legal challenges will keep the buyer happy and interested in closing the deal. The seller will be confident that the ownership is clearly defined and the control of the company can be handed over to the buyers properly. Early identification of these issues will mitigate their impact and give the opportunity to improve the sale process. Long standing exit preparation such as these five legal points will make the owner look professional and the sale price not so high after all.