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Risks of selling and selling a company in 9 points

Would you sell your business or buy a business? Then be sure to read the article below because selling a business is like a skating rink. If you are not prepared for it, it can be a big deal. With the following article, we try to explain the risks in a modern and “not-just-legal” way and thus do the “skating education” of company sales.

Are there any sales and sales of the company at all?

In common parlance, the sale and sale of a company actually means the transfer of a business share in a given company. The law does not specifically provide for the sale of a company. In companies, individuals or legal entities appear as owners who have exercised their ownership rights through their share of the business, their shareholding, or, for example, shares.

It follows from the above that if someone “wants to get out” or “wants to sell their company or their stake,” either the business stake must be sold or the company as a whole must be wound up (for example, by liquidation).

Why do business owners prefer to sell a business?

We have already mentioned in an earlier article that selling a company may seem a much simpler way than a lengthy liquidation procedure. In the latter, we can count on tax inspections, costs and serious administration, while in the case of selling a barely functioning or zero company, we can do everything we can in a few days with a little exaggeration.

company sale
Sale and sale of companies

Can there be a possibility where the seller pays for the company?

It seems strange, but of course it is possible. In cases where someone would invest in the brand or goodwill of “dying” companies, this can be a perfect option with comprehensive business planning. Many times today we see international examples where someone buys a media outlet that has been declining for several years or even a decade because of brand, prestige, or other personal or business reasons.

Or the case of the Kurdish shepherd boy who ran a bankrupt yogurt factory into a billion-dollar business is also well known.

What about “selling a company” for large companies?

In the case of large companies, we tend to encounter “merger and acquisition”, as we never talk about simple sales here due to the complex structures. The acquirer of the company significantly scans the company to be acquired and makes careful decisions regarding both the purchase and the takeover bid.

In this article, we do not deal in detail with the analysis of sales of large corporations, multinational entities, and high-turnover companies.

What can be considered a safe alternative to selling a business?

First of all, let’s differentiate between someone wanting to sell a prosperous, well-functioning company and possibly choosing between customers themselves and when someone would get rid of the company. In the latter case, the owner intends to cease operations or would like to hand it over to someone. In such cases, as mentioned earlier, the liquidation procedure may be a safe alternative to selling the company. In many cases, this is easy (simplified liquidation), but it is always costly and, admittedly, time consuming.

When can a business sale be considered?

The reasons for the sale of the company can be traced back to positive, neutral and negative reasons. A positive reason is when someone is happy with how the company is working or when they think it’s worth getting out of their current business at the right price. It can also be positive when the owner wants to focus on something else and pass on his business, which is part of his previous life.

Neutral situation when a running business is sold, but the stagnant and / or the owners are already tired, tired or even their life situation or health condition has changed. It is equally a neutral situation when a family business is sold because of succession problems.

The situation is negative when the company is unprofitable, the management is opaque or the owners of the company quarrel with each other. The situation is also negative when the activities of previously well-functioning businesses are swept away by the “age” or demand is reduced (travel agency, video store, newsagent, etc.).

What are the business risks of selling a business?

Risks were collected without claiming completeness. Some of the risks below arise only in the case of a valuable company. By implication, if someone were to get rid of the value of the company, they would consider little of the business risk.

Bad timing: Often the seller would be impatient or actually get rid of your company quickly and therefore ignore the true value of your company. Just as scooters are cheaper in the winter, the sale of some companies may also depend on seasonality or more complex market issues. During a corona virus closure, selling a run-in hotel may be a mistake. Of course, there are times when the financial situation or other rational reason may be an argument in favor of a loss-making exit. Liquidity is sometimes a greater advantage, or if the seller can invest in a more prosperous business, the loss may be relative.

Bad Buyer: It is often difficult to sort through customers and some sales designs can prove to be a mistake later on. If you choose the wrong buyer, we can get much less for the company than the company actually gets.

Badly assessed goodwill: One of the most important things in selling a company is to determine the value of the company correctly. There are various calculations for this, such as determining the purchase price adjusted for EBITDA (eg EBITDA x 5-10), and there are those who determine the value of the company based on content or user base. Of course, you always have to make complicated calculations, and you have to take into account debts, receivables, and many other aspects, but we recommend that you always do more calculations for the sales planner and do not regret the money.

What are the legal risks of selling a business?

Subsequent regulatory or other investigations: It is a common misconception that we should no longer be surprised after the transfer of a stake in a company. As a Ltd. its former managing director often finds it difficult to prove that the “account factory” or infringing activity began only after his re-enactment, just as we may receive unpleasant legal questions as an owner after the sale of the company.

Indisputability: Many people flee one company with a sham contract and try to shift the responsibility to another. If it turns out that the purpose of the sale of the share was not in accordance with the law, this can be challenged later.

Compulsory cancellation procedure: If the company is subsequently placed under a compulsory cancellation procedure, the liability of the previous owners and senior executives may also be established in some cases, even if they have not had anything to do with the company for months.

company sale
There are a number of risks involved in selling a business.

What do you listen to if you’re a buyer?

Be sure to review the company’s accounting, accounting and tax law. It’s worth reviewing everything for at least the last 5-6 years. A comprehensive analysis of the company’s business strategy and market situation, as well as an overview of ongoing – or threatening – official and court proceedings cannot be circumvented. In addition, the examination of intellectual property, employees and competitors can be difficult.

You need to look at why the seller wants to sell the company. There may be a personal reason behind this (e.g. there is no successor in a family business), but it is possible that there are market conditions in the background that will later have a negative effect on the numbers that still look nice today. You can’t ignore forums or social networking sites, where you can view customer comments or partner comments for years.

It’s worth talking to the company’s partners and even employees, and it’s definitely worth reviewing the company with a team of knowledgeable lawyers.

If you are about to sell or sell a company, you may want to consult an expert lawyer as a buyer. You can take part in a FREE CONSULTATION through the Legsily platform.

The business part of the sale and purchase with a professional eye.

The Companies Act is available HERE .

The Civil Code is available HERE .

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