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Law Pro
Law Pro, Attorney
Category: Business Law
Satisfied Customers: 24870
Experience:  20 years experience in business law - sole proprietor, partnership, and corporations
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I plan to sell my sole-proprietorship with inventory including

Resolved Question:

I plan to sell my sole-proprietorship with inventory including my business name. What are the basic steps to sell in complying with North Carolina law?
Submitted: 7 years ago.
Category: Business Law
Expert:  Law Pro replied 7 years ago.

Do you have a buyer already?


What type of business is it?

Customer: replied 7 years ago.
A good possibility. The business is servicing floor buffers and scrubbers . These machines are used for cleaning and polishing floors. I service and maintain them.
Expert:  Law Pro replied 7 years ago.

The acquisition of a going business can take a variety of forms, depending on such diverse factors as securities laws, tax planning, avoidance of undisclosed liabilities, and the identity and preferences of the various parties. Usually, the acquisition takes one of the following forms:


Acquisition of a business by acquiring its outstanding stock. OR

Acquisition of a business by buying its operating assets.


Merger of the acquired business with or into the acquiring entity.


Since you stated this is a sole proprietorship - this can't be a stock acquisition.



Acquisition Checklist

1. Parties.

A. Stock Acquisition: The acquired company ("T") and the present shareholders of T (acting as individuals, not by way of shareholder meeting or other corporate approvals).

B. Asset Acquisition: The acquiring company ("A") and T.

C. Merger: A (or a subsidiary of A formed for the purpose) and T.


2. Basic Documentation.

A. Stock Acquisition: Stock Purchase Agreement (may be called an "Agreement and Plan of Reorganization" in the case of a tax-free acquisition).

B. Asset Acquisition: Asset Purchase Agreement.

C. Merger: Plan of Merger.


3. Other Key Documentation.

A. Stock Acquisition: Stock transfer power accompanied by the outstanding stock certificates.

B. Asset Acquisition: Numerous documents of transfer, sufficient to transfer from T to A all operating assets of T. Examples are bills of sale, deeds, assignments of leases and other contracts, transfers of motor vehicle titles.

C. Merger: Filing of Articles of Merger with the Department of State.


4. What Happens to T?

A. Stock Acquisition: T becomes a subsidiary of A, but otherwise continues its separate corporate existence.

B. Asset Acquisition: T continues in existence as a company unrelated to A. T has substituted the consideration received in the transaction for its operating assets. T may thereafter be liquidated, or it may continue in another business.

C. Merger: T disappears as a separate entity and becomes part of A.


5. What Happens to the Liabilities of T?

A. Stock Acquisition: T retains all of its existing liabilities, known and unknown.

B. Asset Acquisition: T retains its liabilities unless they are specifically assumed by A.

C. Merger: T's liabilities are assumed by A by operation of law.


6. Necessary Corporate Approvals (i.e., approvals required by the Business Corporation Law or General Principles of Corporate Law).

A. Stock Acquisition: Approval by the Board of Directors of A is required; shareholder approval is not normally required, unless an amendment to the Articles of Incorporation is involved. No corporate approvals required by T, because T is not a party to the transaction.

B. Asset Acquisition: Approval by the Board of Directors of A is required; shareholder approval is not normally required, unless an amendment to the Articles of Incorporation is involved. Approval by both the Board of Directors and the Shareholders of T is required.

C. Merger: Approval by the Board of Directors and the shareholders of both A and T is required.


7. Necessary Third-Party Approvals.

A. Stock Acquisition: Since T remains in existence and retains all of its liabilities, approval by parties having agreements with T (e.g., landlords, lenders) is normally not required. Note, however, that certain agreements may restrict both A and T in a transaction of this sort, so it is necessary to review all material agreements of A and T to determine if there is any such restriction.

B. Asset Acquisition: Since T is assigning to A its rights under existing contracts, consideration must be given to the necessity of third-party approval in each case. Such approval is essential if T seeks to be relieved from contingent liability under assigned contracts. Material agreements of A must also be reviewed to determine if the transaction requires approval.

C. Merger: Since A assumes T's liabilities by operation of law, approval should not be required, but some agreements are drafted specifically to require such approval. Material agreements of A must also be reviewed to determine if the transaction requires approval.


8. Other Matters To Be Considered.

A. Does the transaction involve the issuance of a security? If so, compliance with applicable state and federal securities laws is required.

B. Are the parties to the transaction and the transaction itself of sufficient size that compliance with the Hart-Scott-Rodino premerger rules are required?

C. Even if Hart-Scott-Rodino is not involved, are there anti-competitive aspects to the transaction? If so, antitrust counsel should be consulted.

D. What are the tax aspects of the transaction? Do the parties anticipate a tax-free transaction? Does A want to write-up the carrying value of T's assets? These and similar issues require review by tax counsel.



Then, once you hae those matters settled - it's time to formally put the matter to a writing and everyone agree.


Here's an example:


Letter of Intent


______, 20______

ABC, Corporation


Re: Proposed Sale of XYZ, Inc. ("XYZ") and PDQ, Inc. ("PDQ") to ABC Corporation or its wholly owned subsidiary (the "Buyer") _________


This letter of intent sets forth the terms and conditions pursuant to which XYZ and PDQ (collectively, the "Sellers") propose to sell to the Buyer, and the Buyer proposes to purchase from the Sellers, the businesses of XYZ and PDQ:

1. The Buyer will purchase substantially all of the assets of PDQ (the "Assets") and all of the issued and outstanding capital stock of XYZ (the "Stock"). The Sellers will agree not to compete with the Buyer for a period of five years after the closing date (the "Closing Date ") of the proposed sale in the states of New York, New Jersey, Pennsylvania, Delaware and Maryland (the " Non-Competition Agreement").

2. The aggregate purchase price for the Assets, the Stock and the Non-Competition Agreement will be $1,500,000.00, and will be paid by wire transfer on the Closing Date.

3. The purchase price will be allocated among the Stock, the Assets and the Non-Competition Agreement as follows: (i) $600,000.00 for the Stock of XYZ; (ii) $600,000.00 (plus the assumption of PDQ's liabilities) for the Assets of PDQ; and (iii) $300,000.00 for the Non-Competition Agreement.

4. The Buyer will assume all disclosed liabilities of PDQ, including without limitation the intercompany loan of approximately $18,000.00 due to XYZ, and all liabilities incurred by PDQ in the ordinary course of business. The aggregate cash and cash equivalents of XYZ and PDQ on the Closing Date shall be not less than the amount needed to pay all of the trade accounts payable of XYZ and PDQ (on a combined basis, but not necessarily on a company-by-company basis) as of December 31, 19______; provided, however, the Sellers shall have no obligation to assure that the aggregate cash and cash equivalents of XYZ and PDQ exceeds $100,000.00 on the Closing Date.

5. The Sellers agree to make customary and appropriate representations and warranties of a seller for like transactions in the purchase agreement among the Sellers and the Buyer. The Sellers' representations and warranties with respect to all matters covered by the Financial Statements referred to in paragraph 7, and such other matters as the parties shall mutually agree, shall be limited to the actual knowledge of the Sellers. The purchase agreement also will contain covenants of the parties, including covenants respecting indemnification, and conditions which must be fulfilled by the parties on or before the Closing Date.

6. On the Closing Date, the Buyer and XXXXX XXXXX ("Smith") shall enter into an employment agreement (the "Employment Agreement"), pursuant to which Smith will be employed by the Buyer as the chief executive officer for all operations of XYZ and PDQ in the Philadelphia area for a term of three years. Smith shall be an officer and director of the Buyer. Smith will agree that, in the event that he terminates his employment with the Buyer voluntarily or the Buyer terminates his employment for good cause, he will not compete in any manner with the Buyer for a period of three years after the later of (A) the termination of his employment with the Buyer and (B) the termination of the Non-Competition Agreement.

7. The Sellers will use their best efforts to furnish to Buyer, within thirty (30) days of the date hereof, the financial statements of PDQ and XYZ as of December 31, 19______ (the "Financial Statements"), prepared in accordance with generally accepted accounting principles consistently applied, and audited by ______, P.C., which in prior years has reviewed (but not audited) the financial statements of XYZ and PDQ. The Financial Statements of PDQ will be for the period October 1 to December 31, 19______.

8. Within five (5) business days of receipt of the Financial Statements, the Buyer shall notify the Sellers in writing either (i) that it has instructed its legal counsel to prepare a definitive purchase agreement embodying the terms and conditions set forth herein (an "Acceptance Notice"), whereupon this letter of intent shall become the legally binding obligation of the Sellers and the Buyer, or (ii) that it does not intend to proceed with the purchase of the Assets and the Stock (a "Rejection Notice").

9. The Buyer and Sellers shall use their best efforts to negotiate and enter into a definitive purchase agreement for the sale and purchase of the Stock and the Assets within thirty (30) days from the date on which the Acceptance Notice is given by the Buyer. If the Sellers and the Buyer shall not (despite their best efforts) have entered into such a definitive purchase agreement within such thirty-day period, this letter of intent shall terminate and neither party shall have any further liability to the other, except as provided in paragraph 12 hereof.

10. The Sellers agree that, from the date hereof through the earlier of (i) the receipt of a Rejection Notice from the Buyer or the failure to receive either an Acceptance Notice or a Rejection Notice within the five-day period provided in paragraph 8 hereof, or (ii) the termination of this letter of intent pursuant to paragraph 9 hereof, or (iii) seventy-five (75) days from the date hereof (the " Pre-Closing Period"), the Sellers:

(a) will not sell or contract to sell any of their assets other than in the ordinary course of business; and

(b) will not negotiate with, or give access to the books and records of the Sellers, or deliver any information respecting the Sellers, other than in the ordinary course of business to, any person, firm or entity; and

(c) will not sell any shares of stock of XYZ and/or PDQ, or securities convertible into shares of stock of XYZ and/or PDQ, or contract to do any of the foregoing; and

(d) will operate their businesses in the ordinary course of business consistent with past practices, except that XYZ and PDQ may pay bonuses to employees or make distributions to shareholders at any time prior to Closing; and

(e) will fully cooperate with the Buyer to enable the Buyer to conduct its due diligence, including, without limitation, providing the Buyer with access to the Sellers' books and records.

11. Except as otherwise agreed in writing by the Sellers, the Buyer will not appropriate, use or disclose, directly or indirectly, for its own benefit or otherwise, any information, materials or documents which it shall have gained access to as part of its due diligence hereunder, or which the Sellers shall have provided to the Buyer, or which otherwise shall relate to the Sellers and which has not been publicly disclosed with the Sellers' permission; provided, however, the Buyer may disclose any such information to its legal counsel for the sole purpose of assisting it in its due diligence hereunder. All such documents, materials and information, including all copies thereof, shall be returned to the Sellers immediately upon expiration of the Pre-Closing Period, unless the transactions contemplated hereby shall have been consummated.

12. The Buyer shall pay for one-half of the additional cost (up to $12,500.00) of the audit of the Financial Statements conducted by ______, P.C. (as described in paragraph 7 hereof) incurred through the date of delivery of the Financial Statements to the Buyer (pursuant to paragraph 7 hereof), i.e., that portion of the fees and costs of such firm which are not associated with such firm's normal year-end review of the companies' annual financial statements (the "Additional Audit Cost"), upon presentation to the Buyer of such firm's invoice for this work. On the Closing Date, the Buyer shall reimburse XYZ and PDQ for the balance of the Additional Audit Cost, together with all additional fees and costs of ______, P.C., incurred through the Closing Date in connection with such audit (the "Closing Date Additional Audit Cost"). Notwithstanding the foregoing, the Buyer shall not be required to pay more than $25,000.00 in the aggregate, for the additional Audit Costs and the Closing Date Additional Audit Cost. The amount of such reimbursement shall be included in the cash of XYZ and PDQ for purposes of paragraph 4 hereof. In the event that the transactions contemplated hereby are not consummated, the obligation of the Buyer shall be limited to one-half of the Additional Audit Cost.

13. Concurrently with the negotiation of the definitive purchase agreement, the Buyer and Smith will use their best efforts to agree upon the rights and obligations which Smith would have as a shareholder of the Buyer (i.e., upon the exercise of his stock options), including buy-sell provisions, preemptive rights and similar matters.

14. This letter of intent and the definitive purchase agreement shall be construed in accordance with and governed by the laws of the Commonwealth of Pennsylvania.

15. The Buyer and the Sellers represent that they have not incurred any liability for any finders' or brokers' fees or commissions in connection with the transactions contemplated hereby, and will hold each other harmless for any such claim.

16. All notices, requests, demands and other communications under this letter of intent shall be in writing and delivered personally or sent by certified or registered mail, return receipt requested, and shall be deemed given when delivered to the parties, if delivered personally, or two days after deposited with the United States Post Office, if mailed, at the following address (or such other address as a party may have specified by notice given to the other parties pursuant to this provision):

If to the Buyer, to it at:

With a copy to:

If to the Sellers, to them at:

With a copy to:

17. This letter of intent is made solely for the benefit of Buyer and its successors and the Sellers and their successors. No other person shall acquire or have any right by virtue of this letter of intent.

18. This letter of intent may be executed in one or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument.

19. Except as provided in paragraph 8 hereof, this letter of intent does not constitute any form of binding commitment by any party hereto; provided, however, the provisions of paragraphs 10 through 19 inclusive hereof contain, and are intended as, an expression of all of the terms of the arrangements among the parties with respect to their subject matter, and such provisions supersede any previous agreements and understandings among the parties with respect to their subject matter and cannot be changed or terminated except by a writing signed by all of the parties. The terms and conditions provided in this letter of intent are not in any way intended to be considered an offer, an acceptance of any offer, or a document of any nature binding upon the parties, but is solely intended as an expression of terms under which the Buyer and the Seller are willing to consider entering into a formal agreement of sale. Any reliance by the Buyer upon the terms or conditions provided herein or upon the existence of any future or current agreement is at the Buyer's sole cost and risk, and Seller shall in no event be obligated to enter into any agreement with respect to a sale of the Assets, the Stock or otherwise, by virtue of this letter or ongoing discussions with the Buyer.

If you are in agreement with the foregoing, please sign below and return the same to the Sellers.

Very truly yours,




XYZ, Inc.



AGREED & ACCEPTED: _________

By: _________

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