You have probably heard that business deals die in diligence. It is true.
By the time a buyer’s lawyers and accountants begin asking questions, the seller has usually lost the chance to fix problems quietly and inexpensively. Every issue they uncover becomes a price reduction, a delayed closing, or an escrow holdback.
The encouraging news is that the most common problems are predictable, and nearly all of them can be addressed before the business ever goes to market. These are some of the issues to consider as you prepare your Georgia business for a sale.
Decide Between an Asset Sale and an Equity Sale
A buyer can purchase the assets of your company or the ownership interests in the company itself. Do not wait to receive a letter of intent before negotiating this. Settle on a preferred structure and a fallback before you go to market. That choice drives nearly everything that follows.
Why Buyers Often Prefer Asset Sales
In an asset sale, the buyer takes the equipment, contracts, and goodwill it wants and leaves most historical liabilities behind, which is why buyers usually prefer that structure.
Why Sellers May Prefer Equity Sales
Sellers often prefer an equity sale, and for good reason. If your company is a C corporation, an asset sale can mean two layers of tax: once at the company level and again when the proceeds are distributed to you. Even in a pass-through entity, the way the purchase price is allocated among equipment, goodwill, and other assets determines how much of your gain is taxed at capital gains rates and how much is taxed as ordinary income.
Confirm You Have the Votes to Sell
This issue surprises more owners than any other. Before marketing the business, someone needs to review its operating agreement, shareholder agreement, bylaws, and any buy-sell arrangement. The right to sell often lives in those documents.
When the documents are silent, Georgia law fills the gap, and the default rules are stricter than many business owners assume.
A Georgia corporation generally cannot sell all of its assets without approval from a majority of all shares entitled to vote, which means an absent or indifferent shareholder effectively counts as a vote against the deal.
For a Georgia limited liability company whose operating agreement is silent on the issue, the default rule is unanimous member consent. That means that a passive 10 percent member you have not spoken with in years may hold a veto over your sale. Minority owners may also have statutory rights to dissent from the transaction and be paid fair value for their interests.
These problems are solvable, but they take time and sometimes negotiation. Find out where you stand before a buyer does.
Get a Tax Clearance Certificate Before a Buyer Asks for One
Of everything on this list, unpaid taxes do the most damage to sellers, which is why we raise the subject early in every engagement. Georgia takes unpaid business taxes seriously when a company changes hands.
If a buyer purchases your business, or even just its equipment or inventory, without confirming that your sales taxes and payroll withholding taxes have been paid, the buyer can become personally liable for what you owe, up to the full purchase price.
No contract language between the parties can shift that risk. Sophisticated buyers know it, so they will insist on a Tax Clearance Certificate from the Georgia Department of Revenue and will hold back part of your purchase price until they receive one. The Department will not issue the certificate while there are unpaid balances or unfiled returns, so an old, forgotten liability can stall your closing or reduce what you take home.
The structure of the sale matters as well. Georgia generally does not impose sales tax on business equipment sold as part of a complete liquidation of the business within a short window, typically thirty days, but a piecemeal or drawn-out sale of the same equipment can become taxable. Inventory ordinarily passes tax-free under the buyer’s resale certificate. And if real estate is part of the transaction and any seller lives outside Georgia, the state requires income tax withholding at closing.
Have your CPA and your Georgia business attorney review your tax posture, file anything that is missing, and request the clearance certificate before you list. Walking into negotiations with a clean certificate in hand settles the issue before a buyer can raise it.
Identify Liens, Contract Consents, and Noncompete Terms
Liens and security interests filed against your company are public records, searchable statewide in minutes, and so are tax executions and pending lawsuits. A buyer’s counsel will pull all of it. If an old equipment loan was paid off years ago but the lien was never released, fix it now, on your schedule, rather than waiting until the middle of diligence.
Contracts deserve the same attention. Many customer agreements, supplier contracts, and leases cannot be assigned to a buyer without the other party’s consent, and some contain change-of-control provisions that apply even when the ownership of the company, rather than its assets, is being sold.
Knowing which consents you will need and how cooperative those parties are likely to be is far better learned before the business is marketed than during a 30-day sprint to closing.
Finally, expect the buyer to ask you to agree to a non-compete and a transition assistance period. Georgia law gives the parties real room to reach a meaningful agreement here. A noncompete given by the seller of a business is presumed reasonable for up to 5 years and longer when tied to ongoing payments, such as an earn-out.
A thoughtful transition and covenant package reassures the buyer that the goodwill it is paying for will remain with the company. That confidence is reflected in the price. Decide in advance what you are willing to give and what it is worth.
Speak With a Georgia Business Sale Attorney Before You List
A prepared seller controls the process. When the structure is settled, the votes are lined up, the tax certificate is in hand, and the liens and consents are mapped, due diligence confirms what the buyer hoped to find rather than supplying reasons to renegotiate the price.
At Thrift McLemore, we help business owners across Georgia reach that position before the first buyer ever sees a financial statement. If a sale is on your horizon, even if it’s a year or two away, call us. Our business sale attorneys will walk through your deal structure, governing documents, tax exposure, and timeline so the process runs on your terms.
Call us today at (678) 882-0830 or click here to schedule a consultation.
