We have a sole proprietor business of 25 years. We would like to grow this business by branching out to a new location. But we would like to get rid of the existing location by selling that part of the business ( since it has 25 yrs of great history ). So, the new business will have a new location and new name. In order to acquire a loan to grow the business it would need to be an expansion loan, so I do not know if we could actually sell the other part of the business. It has been suggested that we take business A and DBA as business B, but again we would then not be selling business A. How would you suggest that we go about creating the new co, which will be an LLC ? We do not wish for business A to be under our control at all. I would like for business A to be able to retain the name as an historical thing and first location….
Lee A. B.
Congrats on running a successful business for almost three decades. You’ve got a few related questions, so I’ll try to tackle a few. First, if you want business A to retain its original name, you would have to sell to an owner willing to agree to do just that. If the name is particularly valuable, that shouldn’t be an issue. However, if the real estate becomes more valuable as a condo, for example, the new owner might break that agreement, and you would have limited recourse.
Second, it appears you wish to take the intellectual property/brand name of business A to the New Co. You can sell the assets of business A while keeping the elements that you wish to keep to it to start New Co/business B. Those assets will be instrumental in helping you acquire the loan, etc.
Strategically, you might want to create the new entit, purchase assets from business A, with part proceeds from the expansion loan to lower your tax exposure. In sum, don’t let the decades of success in business A go to waste.
Be sure to speak to experienced legal counsel and a CPA. If you have any more questions, reach out to the team at ScotchPalm.com—lawyers and bean counters, fearlessly connecting the dots for entrepreneurs.