After the purchase is completed, you can wash your hands and move on to retirement, right? In some cases, yes. In others, not necessarily.
As the seller, you know all the little details about your business. You have years of experience. The buyer wants to gain access to your knowledge of the business so he or she can profitably run it. Typically, most buyers and sellers choose to include a consulting agreement in the purchase transaction, giving you (the seller) a role in the company post-sale, sharing your knowledge with the buyer.
With a consulting agreement, the buyer agrees to compensate you to be available for consultation on various business matters. The buyer will pay you in increments for a specified length of time, and in return, you agree to be available for a set number of hours each “pay period.” For example, for the next 18 months, you get paid on the first of each month to be available for 10 consultation hours that month. Even if you do not get called for consultation, you still get paid for that month. These terms are all negotiable, so make sure you find something that works for both you and the buyer. Payments received by your will be ordinary income so be aware of the tax consequences.
For almost 20 years Kim Lowe has lawyered from the trenches. Kim lawyers from experience, using her knowledge of the law and understanding of how both for-profit and nonprofit business enterprises operate.
Emilee Walters is our first Avisen Legal Fellow alum and a third-year law student at the St. Thomas School of Law. Emilee is exploring a legal career in business law.
Todd helps business owners and their companies solve legal and business problems related to financing, startup, formation, shareholder disputes, contract drafting, negotiations, SEC compliance, company sales and purchases.