Stay Within the (Property) Lines

The PAR Legal Hotline regularly gets questions about whether a real estate licensee can sell a business, with or without associated real estate, and if so, what forms they should use. While technically not illegal, a real estate agent selling a business is generally not a great idea.

For starters, your license allows you to represent others in the buying, selling and leasing of real estate. Nothing more and nothing less. The pre-licensing education, licensing test and continuing education requirements are in place to ensure a modicum of competency while engaging in licensed activity. This education and testing applies solely to real estate transactions and does not apply to selling a business.

Nor does PAR have any forms relating to selling a business. Since we are an association of Realtors^®, and you as a member are generally licensed to sell real estate, our forms revolve around real estate transactions. In the sale of most businesses, any real estate involved is often ancillary to the transaction.

An even better reason we do not have such a form is because selling a business can be an extremely complicated transaction. While in private practice, I was involved in dozens of transactions involving the sale of businesses. No two transactions were alike. Some included real estate and many did not. Some agreements were merely a couple of pages while others were hundreds of pages. There is no way a standard form is capable of meeting what is required when selling a business.

Aside from licensing and forms reasons, there are two other significant and related reasons why you should not try to sell a business even though no specific licensing is required – competency and liability.

Let’s be honest for a minute: Have you really developed the professional competency to sell a business? Can you adequately explain the difference between an asset sale versus a stock sale and when one is preferred over the other? Do you understand how to conduct due diligence on the plethora of contracts often involved and whether those contracts transfer to the buyer? How about dealing with employment issues and the associated tax accounts? When is governmental approval or notice required? What about purchase price allocation between tangible and intangible property? And the list of issues to address just keeps going.

Many attorneys practicing in this area likewise are not competent to handle an entire transaction on their own either. We often would bring in other attorneys, such as employment, estate planning or intellectual property attorneys to help. It was also extremely common to bring in accountants, real estate agents and other qualified experts to assist with aspects of the transaction as well.

And the close cousin to competency is liability. The liability in a business transaction can be sky high. Screw something up and there is a good chance the client will try to point the finger back at you for the blame. When (not if) that happens, it is quite possible your E&O insurance will not step in to help since, again, you are likely not involved in the practice of real estate. That could mean you are on the hook individually for defending yourself and paying any judgment. And there is a good chance your broker is dragged into everything as well. This is one of the reasons why your broker may not even permit the sale of businesses through the brokerage.

In short, you are best off staying within the (property) lines of your license. When approached by a potential client to sell a business, the best advice you can provide is to offer assistance on any real estate portion, such a providing a comparative market analysis or even listing the real estate itself, but referring the potential client to an attorney and/or a qualified business broker to handle the sale of the business.