How to Transfer Ownership of a Sole Proprietorship

By Brette Sember, J.D.

How to Transfer Ownership of a Sole Proprietorship

By Brette Sember, J.D.

Your sole proprietorship is a business, but it's also personally owned by you. As a sole proprietor who has not incorporated or formed an LLC, you own all the assets of the business and are personally responsible for its liabilities. You can also sell your sole proprietorship to someone else by selling its assets.

Businesswoman and businessman sitting in cafe and looking at laptop and documents

Identifying Assets of the Business

Since you own the business assets in your own name, before you can sell your sole proprietorship, you need to isolate the assets to be sold. Create a list of the tangible assets you are including in the sale, such as office furniture, inventory, machinery, and any other physical items. You can also sell the intangible assets of the company, including its copyrights, trademarks, and customer lists.

Valuation of the Business

Once you know what assets you are selling, you need to determine a value for what the business is worth. You may want to hire an appraiser to help come up with a fair value. The valuation includes not only the assets of the business but also its income and projected income, so it is important to have clear records showing the income you've earned in the past few years. Valuation methods include cash flow, revenue analysis, or a combination of these two methods. Your business may have debts and, if so, you need to plan whether to pay those off before the sale or have the new owner take on responsibility for them, which could lower the overall valuation.

Preparing a Sales Proposal

To find a buyer, you may have to do some legwork. Prepare a sales proposal that includes your financial statements and specifies what exactly you are selling, as well as your projections for future income and growth. Emphasize the unique strengths your business offers. Include the price you are seeking.

Sales Agreement

Once you've found a buyer and agreed on a price, you need a written sales agreement. The agreement should be based on your sales proposal and should include:

  • The list of assets that are included as part of the sale
  • The intangible assets such as trademarks, copyrights, and customer lists you are including in the sale
  • A list of debts being transferred, if any
  • Names of the seller and buyer as well as the name of the business and date of sale
  • A noncompete clause, which is a statement that you will not compete with the business for a specified period of time after the sale
  • The purchase amount
  • Signatures of the buyer and seller

Completion of the Sale

To complete the sale, the buyer must transfer the purchase price to you. You then transfer all assets included in the sale to the buyer, including any keys, pass codes, or other necessary access information. Assets with deeds or titles need to be legally transferred to the new owner. Any business licenses or tax ID numbers cannot be transferred to the new owner, so you should close those down with the appropriate agency and the new owner will need to apply for new ones.

Once you've followed all of these steps, the transfer of your sole proprietorship is complete.

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