Employees are often the last persons to be notified about the sale of the business, but usually are among the first persons who know about negotiations and due diligence. Many other persons may need notice, usually before closing, about the pending sale.
The seller must have due authorization to sell the business. If the seller of business assets is a corporation, a majority of its shareholders must approve the sale of substantially all of the corporation’s assets. Approval by LLC members may not be required when the seller is a limited liability company (the authority required will usually be governed by the operating agreement), but the buyer is best advised to have proof that the LLC members have authorized the sale. If the business is to be sold by means of a sale of stock, the shareholders should be notified as soon as possible and may want to negotiate terms directly with the buyer.
Although Massachusetts no longer requires prior notice of a bulk transfer (that is, a sale outside the ordinary course of business of a major part of the seller’s materials, supplies, merchandise and inventory) to the business creditors, nevertheless they and others may need notification before closing. Customers, vendors and suppliers, wholesalers, contractors and subcontractors, landlords, banks and other creditors, unions representing business employees, insurers and sureties may need to receive notice of the sale and may need to approve the sale and transfer of the business before closing. Often the buyer will want to meet such persons directly and negotiate elements of the transaction directly with them. In practice, notification of such persons, and obtaining any required approvals, often complicates the sale process or sometimes prevents closing, since those persons have their own separate concerns about the business and specific interests which they also want to promote and protect.
The nature of the business or the assets being sold may require other notifications. For example, if one of the business assets is a liquor license, or a similarly regulated asset, governmental approval and administrative authorization will be required before closing. Sometimes, if the business is regulated by state license, such as a professional practice, only a qualified professional can buy the business.
The buyer’s plans for the business may require notice to its own creditors and other persons who have dealt with the buyer’s business before closing.
Before setting a realistic closing date, both the seller and the buyer should carefully determine who must be notified and who must approve the sale of the business, when they must be notified and how long any approvals will take. The Purchase Agreement should address these concerns.
Finally, after the other requirements are established, but at least equally important, the business employees should be notified about the sale. Timing of this notice is critical to both parties. The seller wants to retain its employees and maintain their productivity until closing, and certainly after negotiations if the sale does not close, so the seller usually wants to delay notice until closing is certain. On the other hand, the buyer may want to employ many business employees, particularly key employees, after closing in order to have their experience and to preserve the value of any ongoing business concern, so the buyer may want to interview employees before closing. The buyer may place importance on retaining certain key employees for the business after closing and may require employment agreements, effective at closing, for such persons. Balancing these conflicting concerns is one of the most sensitive issues in the sale of a business. The parties are best advised to consider these issues, resolve their concerns, develop a mutual strategy, reduce their mutual agreement to writing in the sale documentation and work together early in negotiations, through the closing and if appropriate after the buyer takes over the business.