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Misrepresentation What Is It and How to Avoid It When Selling a Business

Misrepresentation occurs when you falsify something in order to sell your business or achieve a higher sales price. It also occurs when you leave something out, which is lying by omission, especially if someone can prove that you intended to leave out the important fact for the purpose of impacting the buyer's decision. Under the law, if a falsehood or omitted fact leads the buyer to purchase a business thinking one way and they discover a new truth after the contract is signed, the purchase agreement may not hold up in court. Even if the purchase itself is not reversed, the seller may owe damages or other reparations because of the misrepresentation.

Most individuals seeking to sell a business wouldn't maliciously stack the deck, but here are a few tips for avoiding misrepresentation as you seek a buyer.

Work with an experienced broker

Begin by working with an experienced broker to prepare your business for sale, list and market it and locate potential buyers. A good broker knows how to cast your company in the best possible light — maximising any potential purchase price — without overstepping legal lines. Brokers also keep up with where those lines are because it protects their own business to do so. You might want to say something in your advert, or agree to something with a seller, that isn't quite above board, and a broker can help you understand where the line is.

Don't try to hide major flaws

It's tempting to gloss over major flaws or issues with a business, but not being honest with the buyer now can cause future legal and financial issues for you later. It's one thing to add a new coat of paint to the walls to help ensure a location looks as fresh as possible, but painting over mold or mildew damage and not disclosing it to the buyer is wrong.

Be as transparent as possible with the books

Be honest about more than the state of the chattels. Know that any buyer will want to review your financial statements, and you should have an accountant or other qualified professional review them first. By ensuring the books are in order, you can be transparent about the financial state of the business. Avoid boosting revenues in ways that aren't sustainable, such as agreeing to a temporary contract with an esoteric loophole that lets the other person out as soon as you sell the company.

Have a lawyer look over your listings and agreements

Having a solicitor read all of your listings and agreements with potential buyers helps ensure you haven't misrepresented anything by error or omission. Lawyers who are familiar with this type of work can point out where a phrase might be taken to mean something else, causing a misrepresentation you never even intended.

While you don't have to disclose every piece of information about your business when selling it, you do need to keep things legal and honest. Working with the right professionals lets you balance those things to ensure a strong sales price and future peace of mind about the transaction.


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