How to avoid a lawsuit while selling a business

After many years of hard work and dedication, ironing out early problems, you have now built a successful business, but you have also constructed it so that it can essentially run without you. Wanting to fully realize its equity and enjoy some of your life before you get too old to do all the things you want to do, you have decided to sell it off to any party that is interested in your baby.

Before you enter into this process though, it’s vital to ensure that you don’t inadvertently put yourself in a position where you might find yourself being sued by the very parties that you thought were going to free you from the day to day grind of running your enterprise.

With that in mind, here are some points that you need to commit to memory if you wish to avoid a lawsuit while selling a business. We spoke with A. Neumann and Associates, LLC, professionals in the realm of buying a business, selling a business, business valuations and of course, making sure a deal is legally sound.


1) Don’t distort or misrepresent aspects of your business

It might be tempting to project optimistic sales numbers in an effort to increase interest in your listing, it is best to stick to the facts. If buyers that discover that the revenue that they are making from your business is way off the mark from what you claimed that they should be making, you might find yourself being summoned to civil court by those with the financial resources to do so.

2) Don’t omit information that might make your business look less than perfect

Errors of omission are just as bad as errors of commission, especially if it has a direct impact on a buyer’s profits, revenues, or cash reserves. Don’t hide the fact that your brick and mortar business has piping that desperately needs replacing, or that Google slapped your website with a manual SEO penalty, as these factors can become basis for a lawsuit if they ask if there are any issues that might affect smooth day to day operations, and you claim that there aren’t any problems.

3) No handshakes or verbal agreements – write everything down!

While there still are good people out there in the business arena these days, there are plenty of shadowy characters out there as well. As such, for every term that you agree to at the negotiation table, there should be a paper trail confirming said terms. Enlisting the assistance of a business lawyer is vital in this regard, as they will ensure that all mutually agreed upon points are recorded in a manner that makes them legally binding, which will protect you from predatory lawsuits in the future.

A big thanks to A. Neumann & Associates, LLC for assisting us with answering our questions as well.