Understanding the implications of existing debt is crucial for effective exit planning when transferring ownership of a business. In business sales, two common structures are utilized: stock sales and asset sales. In a stock sale, the buyer assumes ownership of all assets and liabilities, including existing debt. Conversely, asset sales involve the selective transfer of assets and liabilities through a bill of sale, with some liabilities potentially remaining with the seller. However, there are instances where debt may need to be addressed at closing, regardless of the sale structure. For example, leases for equipment may need to be transferred separately, and in some states, successor liability laws could hold the buyer responsible for specific liabilities. Several options are available for dealing with debt at closing. Sellers may choose to use cash proceeds to pay off debt before closing, while buyers can opt to assume all debt. Alternatively, debt can be paid off at closing using escrow funds from the seller’s proceeds. Although the process of handling debt during an HVAC business sale can be complex, there are resources available to navigate the intricacies effectively. Consulting with an HVAC business broker can provide valuable guidance and assistance in addressing any questions or concerns related to debt management in the sale process.
source: https://businessmodificationgroup.com/how-to-deal-with-existing-debt-during-an-hvac-company-sale/
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