New Jersey Business Brokers: Article About Will A Lawsuit Prevent Business Sale
Litigation can seriously worry a business owner who is trying to sell. Depending on the type of business you own, the fact that you are being sued may not prevent the company from being sold. A business broker will work with you and your attorney to determine how to proceed with the business sale. In most cases, experienced New Jersey business brokers can manage to sell your company, even under litigation.
You must fully disclose to all potential buyers any pending litigation. Since you are working with a broker, they should inform potential buyers of any lawsuits or pending lawsuits. Brokers know how to word the disclosure so that it doesn't scare buyers away. If you don't inform your broker of the lawsuit, then they can't disclose it. If the lawsuit isn't disclosed, you can end up being sued by the buyer for failure to disclose. Make sure that you always disclose full details about any pending litigation to any professionals or buyers with whom you are working.
If you are being named directly in the lawsuit rather than the company, selling the company will not matter. You can legally sell the company without having to disclose the information about your personal lawsuit because it does not affect the company. If the litigation involves the company but the accuser only sues you directly, you cannot get out of the lawsuit by selling the company.
If you plan on settling a lawsuit quickly, inform the buyer and disclose exactly how you are settling the lawsuit. Even if you take the case into arbitration or mediation, you must still tell the buyer.
The business brokers from Selby Associates of New Jersey would be happy to answer any question you have about business mergers or corporate exit planning.
Your business broker can continue negotiating a deal with the buyer until the lawsuit is settled. The quicker you settle, the quicker you can sell the business. Even if you do not settle, many deals get done when a business is undergoing litigation. You and your broker must show the buyer that they will experience no liabilities related to the lawsuit from buying your business.
As long as you disclose to all parties and work with an experienced lawyer and broker, a pending lawsuit may not hinder a sale. It may be required that some proceeds of the sale go into escrow pending the litigation outcome. If the company owes damages, this results in the seller obtaining less money and a portion of the sale proceeds which are in escrow goes towards the lawsuit. This may have been the case whether you sold the company or not but it needs to be addressed during a business sale. However, if the pending lawsuit results in no damages, the escrow may go to the seller of the company.
It is important to be as detailed as possible regarding pending litigations and plan for them. Some sellers will decide to wait until a pending litigation is resolved before putting their business for sale. Sometimes depending on the litigation, it is important to disclose even a resolved past litigation if it was within a recent time frame like the previous 3 - 5 years.