Knowing the end-games for your business will help you determine the business structure that is right for you now and in the future. The major variables that determine your best end-game include the size of your business, the amount of assets and liabilities, your desire to maintain control and your desire to liquidate ownership.
Obviously, as a business owner, you want to limit the complications, the expenditures, and the liabilities while maximizing your tax benefits. These goals exist when the business is created but also extend to the “end-game” of your business. And just like selecting which business entity is best for you during the creation of your business, the end-game you choose for your business will affect the liability, the tax benefits and obligations, the expenditures, and the complications.
The major end-game options are:
- Take your business public through an IPO (initial public offering).
- Sell the business in its entirety.
- Sell the assets from the business and liquidate the remaining entity.
Going Public
Taking your business from a private company to a public company through the process of an Initial Public Offering can help you raise exponentially more money to use in your company than other avenues. Access to more money provides the means to grow your business, or “cash out” your ownership. Raising money for a public company is much easier that raising money for a private company. And if you, as the owner, wish to liquidate more of your ownership, it is much easier to sell your ownership through selling shares in the stock market than to try to sell the entire company and/or assets.
However, the process of taking your business public is expensive and complicated. Also, not all types of business entities can become public without first merging with another entity that can become public. Further, after your business becomes public, your business will then be subject to transparency requirements from the Securities Exchange Commission. Most of these requirements involve reporting and filing your financial information publicly. Another consideration is the amount of control you wish to maintain in your business. When your business becomes public, there will be a board of directors that will make all the business decisions. It is possible to be on the board of directors, however, that is more limited than being the owner.
Selling the Entire Business
Another alternative end-game is simply to sell your business. Doing so transfers all the assets, liabilities, clients, etc. This is an easy and seamless process if your business is small with few assets. However, with a larger business that has many assets, the process may become time-consuming, complicated and costly to switch over the assets and liabilities. The liabilities the purchaser inherits include the potential lawsuits that may arise from the business’s prior actions. In most cases, purchasers will prefer asset purchases so that they don’t have to acquire the selling liabilities. That issue will be one for the buyer and seller to negotiate.
Sell the Business Assets and Dissolve the Remaining Entity
Selling the business assets and dissolving the remaining entity is another option. Depending on a number of assets once again, this process may be easy or it could be complicated. However, as mentioned previously, purchasers sometimes prefer this because they are essentially purchasing the business without inheriting any of the liability.
No matter what your business is it will benefit you greatly to have a vision of your exit strategy. In order to gain that vision, you must understand the different options and when each may be most advantageous to your goals.
As mentioned, the major variables that determine your best end-game include the size of your business, the amount of assets and liabilities, your desire to maintain control and your desire to liquidate ownership.
