Preparing An Offer

Information that Generally Comprises an offer

An offer generally defines the who, what, where, when, why, and how questions about a sale.

Is this a sale of stock or assets? Who are the parties and what is being sold?
A sale of the corporation's stock means the buyer will end up with the whole corporation, the assets and the liabilities. Any licenses, leases, agreements, contracts or other arrangements of the corporation should remain in effect. Only the ownership has changed.

For corporations, a sale of assets means that the seller is actually the corporation and whoever owns the corporation will retain the corporation as an entity along with the corporation's liabilities, while the buyer will get the assets specified under the agreement. It is generally a good idea to list these assets.

Partnerships or sole proprietorships are sold as asset sales. This also means that any leases, licenses or other agreements must be renegotiated by the new owner unless they can be assigned.

A corporation can be sold either way and will have two different prices depending on the purchase method. For instance, a corporation worth $300,000 but with $200,000 worth of liabilities may sell for $300,000 in an asset sale but only for $100,000 in a stock sale.

Asset and Stock sales have different tax consequences for both buyer and seller. A transactional accountant should be consulted for advise on tax minimization.

What is the purchase price and how will the it be paid?
How the price is paid will generally consist of a good faith deposit with the offer, an additional deposit at the acceptance of the offer to bring the total deposit up to 10% of the purchase price, and the remainder at the closing of the sale. The remainder at the closing may consist of cash provided by the buyer, cash provided by a financing company or bank, or by seller financing ( i.e. the seller is acting as the bank). Buyers often ask the seller to take some financing back themselves as a show of good faith that the seller believes in the future of the company. With any offer that includes seller financing, the offer should identify the amount, interest rate, number of years, and any other collateral for the loan.

Will the inventory be paid for separately from the business?
In businesses where the inventory fluctuates greatly from day to day, it may make sense to have one price for the business without the inventory, and then pay for the inventory separately at the time of the closing. If this is handled this way, the buyer will have to come up with cash for the inventory. Another way to handle this would be to specify a minimum dollar amount of inventory that is included with the business and pay for any additional inventory separately.

Seller training
The amount of seller assistance and training should also be specified in the offer sheet as well as any additional compensation paid for this period. Seller assistance during a transition period may be critical in ensuring the future success of the business. Assistance may include introductions to customers, suppliers, subcontractors, and others, as well as teaching the new owner the systems, procedures, and daily operations of the business.

Seller non-competition
If the buyer wants assurance that the seller will not open a competing business after the sale, this should be specified in the offer. This should include the time period, geographic area, and type of business for which the seller can not compete.

Approximate closing date and place
The offer should be clear on when and where the deal is expected to close.

Contingencies
The offer should allow for a reasonable period of time between acceptance and closing for the buyer to gain assurance on the representations of the seller. This may include accounting records, legal matters, building and equipment condition, and general business outlook. If the business is not what the seller has represented it to be, the buyer should have the right to terminate the agreement.

The offer should also state the period of time the buyer has to arrange for financing if necessary.

Seller response
The offer should let the seller know how long they can take to think about it and respond with either an acceptance, a rejection, or a counteroffer.

A sample fill-in-the-blank offer form that we often use.
(Word Document | PDF)