How to Sell a Sole Proprietorship

By Terry Walcott

A sole proprietorship automatically comes into existence the moment someone starts a business. The sole proprietorship’s assets and liabilities are typically held in the name of the individual proprietor, not in the name of the business entity. As the name suggests, there can never be more than one owner of a sole proprietorship—more than one owner, without any state registration, creates a general partnership. The business entity dissolves as soon as you sell the assets of the sole proprietorship, and the buyer must establish a separate business structure to receive these assets.

Step 1

Retain the services of a qualified appraiser to estimate the fair market value of the sole proprietorship, and to determine the value of the equipment and inventory you intend to sell. A popular valuation method is to multiply the average profits for the last three years by ten. This earnings multiple can be higher or lower depending on the past and projected future growth rates of the company.

Step 2

Hire a business broker who specializes in buying and selling businesses to assist with finding potential buyers. Advertise the business for sale in listings in the local newspaper, industry related trade publications and online. Prepare a sales proposal that highlights the strengths and untapped potential of your business, and include financial statements from the past three to five years.

Ready to start your LLC? Start an LLC Online Now

Step 3

Meet with potential buyers who respond to the sales ads and negotiate the terms of your sale. The details of how you arrived at the asking price should be explained in detail to each potential buyer. One of the negotiated terms of the sale should be that business accounts in your name will be paid off or closed and the new owner will open new accounts in his own name.

Step 4

Draft and sign a Purchase and Sale Agreement with the buyer. Among the terms that should be covered by this agreement are the assets being transferred in the sale and the sales price being paid for the sole proprietorship’s assets.

Step 5

Re-title all transferred assets into the buyer's name. Business licenses and permits should be changed over to the new owner if possible, or the new owner will have to reapply for them.

Ready to start your LLC? Start an LLC Online Now
How to Transfer Ownership of a Sole Proprietorship

References

Related articles

How to Sell a General Partnership Business

A general partnership is an extension of the partners; it is not a business that is a distinct entity separate from its owners. This means the partners generally have equal control of the business and are personally liable for all of the business’s debts. Also, because a partnership is not a separate, transferable entity, you cannot sell the business. You can only sell the business’s assets.

Liability After the Selling of a Sole Proprietorship

Business owners often sell a business and expect to be rid of future obligations. However, due to the unique position of the sole proprietor, selling the business might not be the end of the story. There are multiple obligations and liabilities that might exist beyond the date of sale, including financial obligations as well as ongoing employment with the business.

How to Incorporate: S Corp or LLC?

Among small business entities, the limited liability company, or LLC, and Subchapter S corporation, or S corp, are popular structures for their pass-through tax treatment and the limited liability protection they offer their owners -- called "members" in an LLC and "shareholders" in a corporation -- in the event of lawsuits against the company for torts committed by employees or other owners. While they share many similarities, they're not the same thing; an LLC is a special business entity that blends elements of corporations and partnerships, whereas an S corp is a traditional corporation that files taxes under Subchapter S of the Internal Revenue Code.

LLCs, Corporations, Patents, Attorney Help

Related articles

Procedure for Change in the Ownership of a Sole Proprietorship

A sole proprietorship is owned and operated under the responsibility of a single owner. All of its business assets and ...

How to Sell a Privately Held Corporation With a Confidentiality Agreement

Sales of privately held corporations are accomplished by selling all shares of the corporation's common stock, which ...

How to Transfer One Sole Proprietorship to Another

A sole proprietorship is an extension of the person that owns the business. This means the proprietor is liable for all ...

Advantages and Disadvantages of Sole Proprietorships

When you start your business, one of the first decisions you’ll have to make is what form the business should take -- a ...

Browse by category
Ready to Begin? GET STARTED