This blog series explores the steps involved in buying and selling a business, which tend to be much more complex than many business owners realize. In prior posts, I discussed the need to start off with a letter of intent, the intricacies of the due diligence process, and financing options related to a business purchase and sale transaction. This post discusses the seller’s potential role in the business after the purchase and sale transaction has been completed.
A seller can expect, as a component of the purchase and sale agreement transferring the business, to commit to both a non-compete clause and a non-solicitation clause. The non-compete clause prevents the seller from starting a competing business within an agreed-to time frame and within a specified geographical distance from the business being sold. The non-solicitation clause similarly prevents seller from contacting the business’s customers and employees for the purpose of luring them toward a competing business venture.
But, what if the seller wants to stay involved in the business and lend a hand after it has been sold? The purchaser may want the seller to stick around for a certain amount of time after the business has been transferred in order to assist with the transition. The seller’s knowledge and mentorship can be tremendously beneficial in ensuring the business’s continued success under the new ownership. As a result, short-term employment agreements for the seller are often included in the purchase and sale agreement.
Sometimes, the seller wants to stay in the business for a longer period of time. The seller may enjoy working in the business, but wish to escape the long hours and attendant responsibilities associated with business ownership. Or, perhaps the seller may wish to assist in management, but also enjoy the freedom of taking extensive vacations. Even if the seller retains a minority ownership interest in the business to ensure participation, a longer term employment contract may be in order.
These arrangements can work to the benefit of both the purchaser and the seller, so long as the seller and the purchaser have, and can maintain, a positive working relationship. Also, the seller must possess the ability to “let go” and realize that she no longer has the responsibility of being captain of the ship. The purchaser may make radically different business decisions than the seller would under similar circumstances, and the seller needs to be able to graciously accept and work with those differences. But, so long as those components are present, the parties may be able to negotiate a positive and effective ongoing relationship in which the seller remains involved in the business long after the transaction has closed.