Getting Out

The Small Enterprise Knowledge Center provides a complete guide in starting and managing a business. Through the basic business modules, the Center aims to equip you with knowledge on the key aspects of a business. All materials published in the Center were based from the U.S. Small Business Administration website (www.sba.gov) and adapted to suit the local Philippine situation and laws.

Getting Out

Are you thinking about starting a business of your own? Explore the modules below to learn the aspects of starting a business and find ways on how to succeed.

Before you retire and hand over your business legacy, it is essential to plan and develop a business exit strategy to ensure your life’s achievement is in good hands. Formulating a succession plan has a significant role and could influence on long-term business profitability. It is necessary to consult your lawyer and a business expert as well to explore all the best alternatives.

Thus, business owners should consider these steps in planning your succession:

1. Choose your successor. Succession should begin 15 years before you plan to retire. Consult and seek the advice of your board of directors to help you determine a qualified candidate.
2. Formulate a formal training plan for your successor. In preparing a plan, determine the key functions of the company and immerse your successor on the depth and breadth of the business operation.
3. Set a timeframe. Establish a training timetable and a timetable for shifting control of the company. This will help your successor to be motivated to move through his or her training program quickly and successfully.
4. Prepare yourself for retirement. Start your retirement plan early. This plan may encompass recreation, travel, community service or another business venture.
5. Install your successor. Prepare your successor to perform the roles and responsibilities for which he or she has been trained.

If you deem to leave or close your business, follow the recommended steps below in closing your business:

1. Decide to close a business. Unlike sole proprietorship, co-owners of a partnership or a corporation must make a consensus to dissolve the entity in accordance to the established organizational guidelines. Put the final decision in a written agreement.
2. Seek for professional advice. Closing a business involves tedious and multi-step process. Thus, it is better to seek an expert advice from lawyers, accountants, business brokers, auctioneers, tax experts and bankers.
3. File termination documents. It is best to formally notify the government and creditors of the change. Failure to legally dissolve your corporation will held you liable for taxes and fillings.
4. Cancellation of registrations, permits, licenses and business names.
5. Comply with employment and labor laws. Employees are entitled to have a security of tenure. Final paychecks must be paid to employees by their last day of work or soon after.
6. Resolve financial obligations. Go to your Revenue District Office to know more the steps on how to close your Employer Tax Identification Number (TIN) and payroll tax responsibilities.
7. Keep your records. Even after closing your business, maintain records, particularly tax and employment records.

Another exit strategy that you might want to consider is selling your business. To formally sell your business to prospect buyers, you will need to prepare a sales agreement. This is an essential document in acquiring business assets or stock of a corporation. In this agreement, you should define all the terms of the purchase, particularly business, assets, customer lists, intellectual property and goodwill.

Below is the checklist of items that should be undertaken in the agreement:

  • Names of seller, buyer and business
  • Background Information
  • Assets being sold
  • Purchase price and assets allocation
  • Covenant Not to Compete
  • Any adjustments to be made
  • Terms of agreement and Payment Terms
  • List of inventory included in the sale
  • Seller and buyer warranties
  • Determination as to the access to any business information
  • Determination as to the running of the business prior to closing
  • Contingencies
  • Fees, including broker fees
  • Closing date

Usually, business owners turnover their family business to the next generation. It can help to provide business security, prepare for tax obligations, and ease of ownership transfer. But for some reasons and circumstances, they opt to transfer the ownership to another person or entity. There are several options that needs to be considered when it comes to transferring ownership rights:

1. Outright sale
Selling a business in full will speed up the process of ownership transfer and payment for your assets.

2. Gradual sale
This type of transfer ownership is a flexible option for individuals who cannot afford outright sale. As the business owner transfer the ownership rights, he/she has not to worry about managing his business but is still receiving a monthly income from the gradual sale.

3. Lease agreement
Through a lease agreement, an individual will commit to a contract that details the terms of conditions and payments that will be receive for the temporary rights to the business.

  • These laws below would serve as a guide for business owners to comply with the basic laws for conducting and exiting a business:
  • Labor Code of the Philippines (Presidential Decree No. 442) – it governs the employment practices and labor relations
  • Tax Reform Act of 1997 (R.A. No. 8424) – it governs the national taxation in the Philippines and gives the Bureau of Internal Revenue the authority to assess and collect national internal revenue taxes.
  • Home Development Mutual Fund Law of 2009 (R.A. No. 9679) – it mandates employers to register their business and their employees with the Pag-Ibig Fund
  • Social Security Act of 1997 (R.A. No. 8282) – the law that mandates employers to register their business and their employees with the Social Security System (SSS).
  • Civil Law of the Philippines (R.A. No 386) – it is the civil code of the Philippines which includes the laws on obligations and contracts. This law also governs special contracts such as contract of agency and partnership.
  • National Health Insurance Act of 1995 (R.A. No. 7875) – it is the law that mandate employers to register their business and their employees with the Philippine Health Insurance Corporation or PhilHealth.

If you have decided to get out of the business yet you are not able to transfer or sell it, liquidating your assets might be a viable strategy for you. Understanding the liquidation process is essential to help you recover your assets and pursue future undertakings.

Here are the steps to liquidate your assets:

1. Talk to your lawyer or accountant.
2. Examine your assets. Make an inventory and prepare each item for sale.
3. Secure your merchandise.
4. Set the asset liquidation value. With the help of an eligible appraiser, secure a written liquidation value appraisal before entertaining offers.
5. Calculate and estimate net sales proceeds. Ascertain that a sale is worthwhile.
6. If a liquidation sale seems worthwhile, choose what type of sale for your merchandise. Having a public auction would be suitable for most business assets.
7. Determine the best timing or season that will be convenient and will attract customers to buy your merchandise.
8. Find the most appropriate venue or location to hold your sale that will have an impact on your net proceeds. Usually, it is best to hold your sale on your business premises.
9. Choose an expert to conduct your sale. It may be an auctioneer, a dealer, a broker, etc.
10. Use a non-recourse bill of sale.

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