Successfully Transferring a Small BusinessShare this post
Learn the Steps to Transferring a Small Business
The time has come to sell, leave, or change ownership of your Limited Liability Company (LLC). Fortunately, transferring control of your business to someone else is relatively straightforward. We’ll guide you through the necessary steps to leave your LLC in safe hands. How do you handle transferring a small business successfully?
There are four primary goals of a successful small business transfer:
- Generating sufficient financial reserves for the owner’s retirement after active involvement in the business ends.
- Transferring the business intact (and for its maximum value if sold to a third party) to the owner’s chosen beneficiaries
- Minimizing the cost of transfer
- Providing sufficient liquidity to pay the transfer costs.
Business owners are typically unsure of their worth. Without a solid idea of the business value, the owner is guessing at whether or not they will have sufficient financial reserves once the business is sold to retire in their lifestyle of choice.
With a privately held business, the transfer of shares is complicated by many things; the ability of the desired successor to actually save the money to purchase or finance the purchase of the shares, as well as issues such as minimization of tax liability, fairness and many others.
Some other concerns and questions when transferring a small business:
Can a business be transferred to another person?
Yes, a business can be transferred to another person, by sale, reapportionment of multi-owner businesses or lease-purchase. A business owner can also transfer a business to a person through gradual cash gifts or by bequeathing the business.
How do you change ownership of a business?
Once you’ve transferred ownership, you must make sure the ownership is legally and properly changed by appropriate transfer of business ownership agreement(s). This can vary by type and structure of business, so it’s prudent to consult with lawyers to make sure all appropriate closing and transfer of ownership paperwork is drawn up and executed properly.
How do I transfer my business to a family member?
You can give cash gifts to an individual family member of up to $15,000 every year without incurring gift taxes, up to a maximum of $11.7 million for 2021. You can also leave the business to family members in your will or a succession plan.
Can ownership of an LLC be transferred?
The method of transferring ownership in an LLC is to bring in a new member if agreements, other members and state law permit. You can then, if you wish, exit the LLC.
Can you transfer an EIN to a new owner?
An Employer Identification Number (EIN) is a tax identification number for a business. You cannot transfer it to a new owner. In fact, the Internal Revenue Service (IRS) mandates a new EIN in certain circumstances, including a new owner or change in structure.
In addition, the departure of one owner usually has a great effect on the business value and income. It is typically a challenge to find, keep and train the right successor. Since privately owned businesses are usually dependent on the departing owner, the survival of the business may be at risk and of decreased value if the transition is less than successful. If you have any more questions about successfully transferring a small business, don’t hesitate to contact the lawyers at Anthony J. Madonia & Associates. They’re always happy to help.