There comes a time when an entrepreneur considers putting up their ecommerce business for sale. The reasons can change from personal to professional. It can be to raise capital to start another enterprise or to take a sabbatical before deciding on the next steps. While the reasons can be unique to each individual, the subsequent activities are quite similar in nature. Here’s a quick look at the key steps involved in putting up your ecommerce business for sale and the legal and tax considerations that may be associated with them.

  1. Decide on the mode of sale
  2. Conduct a business valuation
  3. Identify the listing medium
  4. Prepare for the negotiation 
  5. Close the deal

Each of these steps needs to have thorough due diligence as a precursor and include a careful evaluation of risks. The key category of risks includes financial, operational, legal, and contractual. You must also bear in mind compliance with taxes and other regulatory obligations.

  1. Decide on the mode of sale

As a first step, you must decide whether you wish to carry out the selling process all on your own or would prefer professional assistance. If you have experience in listing an ecommerce business for sale in the past, then you can try to go solo on this endeavor. With your experience, you would know the typical pitfalls that lie on the way and can sidestep them by preempting them. However, those who are selling their business for the first time can find this activity to be challenging and frustrating at times.

Consider the services of a broker who will guide you through the entire step and help you understand the various financial and legal considerations at each stage. Yes, they will charge a brokerage but it can be quite cost-effective in the larger scheme of things. Else, you will need to count on a professional chartered account and a business legal counsel to ensure your ecommerce business for sale is not in violation of any tax or legal requirements.

  1. Conduct a business valuation

If using a broker or selling to an acquiring platform, they will take responsibility for conducting a valuation to arrive at a fair market price for your ecommerce business for sale. A lot of tangible and intangible factors are taken into account. Naturally, the financial health of your ecommerce business for sale is one of the key determinants. This also includes your current legal and financial liabilities. Businesses that have no litigation ongoing, are all paid-up on their taxes, and don’t have a backlog of unpaid liabilities are inherently more appealing to buyers.  

  1. Identify the listing medium

Choosing the platform to sell your business on requires due diligence as well. Apart from checking the costs and reach of the medium, you must also examine its terms and conditions and any other legal obligations that it may expect of you.

  1. Prepare for the negotiation 

The negotiation stage is where the bulk of the heavy-lifting happens. The shortlisted buyer is bound to ask for a detailed view of your operations. This includes a look into your financial data as well. You can smoothen the process by gathering all necessary information and making it easily accessible to the buyer. However, do not share any sensitive information without having a legally binding non-disclosure agreement (NDA) in place first. This will protect your information as well as those of your customers and suppliers. Don’t forget your intellectual property rights (IPR). Your negotiation must clearly address whether you’re obligated to transfer IPR to the new owner, or they remain under your name.

  1. Close the deal

The closure of a deal is fraught with legal and tax-related risks. Firstly, you need to prepare for the transfer of ownership. Here, you need to ensure compliance with all the rules and regulations that govern the sale. Each aspect needs to be properly documented, including any necessary business filings, the transfer of licenses, permits, and other legal documents. Existing supplier and employer contracts, lease agreements, and other professional documents will also need to be either transferred or terminated. If you agreed to transfer your IPR as well, then this too needs to be factored in.

Apart from your obligations towards the new owner, you will also need to evaluate your own personal finances and tax implications (such as capital gains taxes, state taxes, and any taxes related to the transfer of assets) of finalizing your ecommerce business for sale. A combination of a chartered accountant, a tax professional, and a legal counsel can be of immense value while managing legal compliance and planning your tax obligations. 

Wrapping it upWhen you sell your ecommerce business, there are a plethora of factors to be considered. Each stage has its own unique set of challenges and considerations. Understanding them in advance will help you be more prepared to manage them successfully and conclude the process to your advantage.