How to Transfer Sole Proprietorship When Selling a Business

The majority of 25 million non-employer businesses in the U.S. are sole proprietorships.

As you’ve found your way to this article, we bet you are one of these millions of sole proprietors. Are you ready to sell your business and move to the next phase?

Selling a sole proprietorship is almost as simple as starting one. But you need to be aware of some unique aspects of the business transfer to get the sale you deserve. The small details can be confusing, but we are here to help you understand the difference between selling a business versus its assets.

Continue reading below to get prepared for the transfer of your sole ownership.

Explaining a Sole Proprietorship

Many business owners begin their entrepreneurial ventures as sole proprietorships, the simplest business structure. There are very few legal requirements when starting a sole proprietorship, making it a go-to business structure for early businesses.

A sole proprietorship is not considered a separate business entity but an extension of the owner. He or she will then create a separate name for the business, called a DBA.

Yet all liabilities and responsibilities fall to the individual owner and not the business.

This business structure can only have one owner and dissolves upon the owner’s death or sale of the business. You can sell in a single transaction, as only one person owns 100% of the company.

The Details of Selling a Sole Proprietorship

The most crucial part of understanding this business exit strategy is how the transfer works. A sole proprietorship can’t be transferred to another party.

Only its assets can be sold and transferred to another business owner.

A business’s assets include both tangible and intangible components. Tangible items are things such as inventory, machinery, and land. Intangible items are brand names, trademarks, and intellectual property rights.

Liabilities and legal obligations remain with the original business owner. These are not transferred with the assets. The first sole proprietor must still pay off debts even after dissolving the structure.

Process of the Sale

Before assets are transferred, the buyer must begin a new business structure to subsume the assets. This includes an LLC or a corporation, and it must be a unique structure.

You want to careful in valuing each tangible and intangible aspect you aim to sell to get the most for your sole proprietorship. Determining the sales price includes estimating the value of your business based on earnings. Further, an appraiser helps with determining the market value of tangible assets.

Find and negotiate with various buyers to get the best price before drawing up a detailed sales agreement. The agreement should include each transferred asset, the sales price, and the buyer’s intent.

You may also include a non-compete agreement, assuring the buyer you won’t start a business in the same industry and use the same customer list.

After signing the sales agreement, the final steps include transferring the assets, paying off debts, and officially closing the sole proprietorship. A call to the Secretary of State sharing you’ve dissolved the business is the final phase.

Transfer a Sole Proprietorship With Ease

Not only is starting a sole proprietorship simple, so is selling it to another owner. The hardest part is identifying each assets’ worth and finding the next individual who will build your idea into its next phase.

Ready to boost your knowledge of business even further? Review our blog posts and continue growing your business acumen.