A sole proprietorship business is the easiest form of business to start, but it can be one of the most complicated to sell to another party. Starting a sole proprietorship business involves no formal paperwork and no separate income tax return since, in the eyes of the Internal Revenue Service and state taxing agencies, the individual owner and the business are the same, which is precisely the problem in changing ownership – legally and financially separating yourself from the business you have created and operated.
A sole proprietorship cannot be sold or transferred in the
same way other business entities can be sold.
A written sale agreement, reviewed by an attorney, is the best protection against misunderstanding what is and is not included in the sale of the business. For example, suppose your name is part of your business name. In that case, you will undoubtedly want the sale of the business to include a mandatory name change unless your name carries a unique branding advantage for the new owner and you agree to let them continue to use it.
What to do About Cancelling or Changing a DBA?
Most states require registration of a business name other than your own name. If you have operated your sole proprietorship under a "Doing Business As" (DBA) name, contact the state office where you registered the name. Suppose you do not want the new owner to use the name, request and file a cancellation form. If you agree to allow the new owner to continue using the name, request a change of ownership form if available.
Not all states allow a new owner to assume an existing DBA. Some states also require a public announcement of a change, usually in an approved newspaper. Even it is not necessary for your state, a public announcement is a good business practice and may help protect you from liability for any subsequent legal problems the new owner might have.
Notify in writing all vendors, suppliers, contractors and other businesses and creditors that you have sold the business and you assume no debts of the new owner as of the date of the sale. Send a letter to all insurance carriers that cover your business. However, you should discuss the sale with your liability insurance carrier before the sale, especially if you have product liability insurance. If you sell business assets, such as business vehicles, ensure the title is transferred correctly and file release of liability forms.
Notify your customers in writing, also. Customer notification can be delicate, mainly if your customer list is part of the sale. Consider writing a letter of introduction of the new owner to your customers, but make clear that you will no longer be responsible for any dealings they have with the new owner.
It is vital that you notify all tax authorities that the business is no longer operating under the original owner. Placing a public notice of a change of ownership in one or more newspapers covering the areas where you do business is a good business practice even if it is not required where you do business. Most newspapers can help with the wording, but you should also consult an attorney on filing a public notice.
If you use an Employer Identification Number (EIN) in your business, notify the Internal Revenue Service and the appropriate state government office to cancel the number and file any final tax forms required.
Created & Posted by Pooja
Income Tax Expert at TAXAJ
TAXAJ is a consortium of CA, CS, Advocates & Professionals from specific fields to provide you with a One-Stop Solution for all your Business, Financial, Taxation & Legal Matters under One Roof. Some of them are: Launch Your Start-Up Company/Business, Trademark & Brand Registration, Digital Marketing, E-Stamp Paper Online, Closure of Business, Legal Services, Payroll Services, etc. For any further queries related to this or anything else, visit TAXAJ
Watch all the Informational Videos here: YouTube Channel
TAXAJ Corporate Services LLP
Address: 1/11, 1st Floor, Sulahkul Vihar, Old Palam Road, Dwarka, Delhi-110078
Contact: 8961228919 ; 8802812345 | E-Mail: connect@taxaj.com