Selling a business

Time and again, we receive calls on the legal hotline from members asking if they are “legally” allowed to sell a business without real estate.

Some of the related questions include:  Do I need a special license to sell the business? Can the seller pay a fee to me, a licensed salesperson, directly, or does the fee have to run through my broker? Do the Real Estate Licensing and Registration Act and the rules and regulations of the State Real Estate Commission provide guidance, and is my real estate license at risk for any problems that arise from the sale of the business part of the transaction?

Yes, your real estate license is at risk, even if the problem is with the business part of the transaction. No, RELRA and the rules and regulations do not provide guidance relative to the sale of a business.  It depends, maybe the fee can bypass a broker and be paid to the salesperson directly.

The idea of “selling a business” can have many iterations.  At its simplest, “selling a business” is matchmaking: introducing an interested buyer to the seller and letting their respective attorneys do the rest. Period. The other end of the spectrum involves valuing the business and real estate separately, allocating purchase price between real estate and assets, drafting agreements of sale, mortgage and loan documents, overseeing due diligence, etc.

Pennsylvania does not have any licensing requirements for individuals who market only businesses for sale. Business brokers may be generalists who have experience marketing, or they may be individuals with a specific industry knowledge. Usually, the business broker has contacts from which to draw as they function in the role of matchmaker, then stepping aside to allow the parties to negotiate the terms of the transaction.

When the sale of the business is tied to the sale of the real estate, the Real Estate Commission might be able to discipline you for your conduct in the transaction. When the real estate and business are sold together, the commission can look at your conduct in the whole transaction, even though you may contend that your activity as a business broker is distinct from your role as a licensee.  Depending on how deeply you involve yourself in the sale of the business, you could quickly find yourself beyond your area of expertise.  Remember, the commission can discipline you for failing to advise your client to seek expert advice in matters beyond your ken.

Tom Caldwell, my predecessor as general counsel to PAR, was fond of saying, “A smart man knows what he doesn’t know.”  When it comes to selling a business, with or without real estate, you should know that there is very little, if anything, in your training as a real estate licensee that prepares you for this task.

I feel there is but one way for a licensee to be involved in the sale of a business and that is as a matchmaker. List the property, market the business, but when a buyer comes along, deliver the buyer and seller to separate counsel. Provide information, be a part of the process, but do not have buyers and sellers sign documents you have prepared that have not been thoroughly vetted by an attorney. In most cases, perhaps in all cases, counsel should be drafting the documents used in the transaction.

Licensees who are asked to sell a business should consult with and obtain their broker’s approval. They should clearly explain to sellers their limited role in merely marketing the business, and locating potential buyers, and that it will be the role of the seller, with the benefit of counsel, to specifically structure the entire transaction. Keep in mind that certain sales do require specific licenses, like selling cars, and in other transactions, licenses must be separately acquired, like liquor licenses. Keep yourself out of trouble and “know what you don’t know.”  When in doubt, contact counsel.