Legally speaking: Do you need a special license to “sell” a business?
On November 18, 2014
By Peg Ritenour, OAR Vice President of Legal Services/Administration
The OAR Legal Assistance Hotline receives an array of real estate-related legal questions — including license law issues, disclosure, contract law, ethics and commission problems, among others. In an effort to help you work within the law, our “Legally Speaking” series spotlights some of the timely questions that are being asked by REALTORS. This one involves whether your real estate license allows you to participate in the sale of a business…
Q: I am primarily a residential REALTOR, but I have been approached by a former client to sell his small business. I have never done this before. I assume I can list this business since I have a real estate license. Do I need any other type of license? Can I use the standard listing and purchase agreements that I use for residential transactions?
A: The sale of a business is a much different transaction than the sale of residential real estate. Depending on the nature of the business it will most likely involve the sale of equipment, inventory, accounts receivable, the business name, good will, etc. Of course such sales also usually involve the sale of the real property where the business is located or, if the owner is leasing space, the assignment of the existing lease to the buyer. Obviously a real estate license is required to handle that aspect of the transaction, which you have. No other separate license is required, unless the sale of the business is going to be handled as a stock transfer. In that case a securities license would be required. (For purposes of this question it will be assumed that this is not the case.)
Other than the licensing question, the bigger question you should ask yourself prior to accepting a listing for the sale of a business is whether you believe you are qualified to handle this type of transaction. This is important to consider because your fiduciary duties to the seller under both the license law and the NAR Code of Ethics require you to act in the best interest of the seller and to act with reasonable skill and care. Moreover, Article 11 of the Code of Ethics provides that REALTORS shall not undertake to provide specialized services outside their field of competency without fully disclosing this to the client or engaging the assistance of someone who does possess such competency (which fact must also be disclosed to your client).
In determining whether you are able to meet your fiduciary duties to the seller of this business, it is important to think about whether you have the ability to advise the seller on the appropriate pricing for a business, how the sale should be structured, the marketing efforts you would employ to attract a buyer and the transaction documents needed. Certainly the typical residential purchase contract would not be appropriate and instead legal counsel would be needed to draft such a document and to provide other needed legal advice on structuring the transaction and any tax implications that should be addressed.
To conclude, while as a real estate licensee you are technically able to sell a business, it is important to determine whether you possess the skills and knowledge to provide competent representation to the seller. If you do not have prior experience in such a transaction, this fact should definitely be discussed with the seller and the assistance of another professional with such a background may be necessary. Moreover your broker and manager should be involved in the decision making process as you and the brokerage could be exposed to potential liability if you are unable to fulfill your fiduciary duties to the seller because you do not possess the skills and knowledge to handle such a transaction. Remember, while it is difficult to turn away a listing, in some cases it is truly in the seller’s best interests for you to do so.
Tags: legal, Legally Speaking