Ethical Issues in Selling Out

April 13, 2006

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The subject of ethics in business is one that gets little attention in the press — at least, until someone goes to jail for insider trading, or is investigated for price-fixing discussions with competitors. However, we think that you should pay attention to it, especially when it comes time to sell your business.

Aside from the moral implications, you need to recognize that selling a business is a high-stakes transaction, especially for your buyer. Your potential exposure to a lawsuit can be huge, if the buyer spends a lot of money and foregoes other opportunities to buy a business that is not what it appears to be, or if you have partners or shareholders who feel they are not getting what they deserve out of the deal.

For that reason it's important to observe the letter of the law regarding the following:

disclosure obligations to potential buyers
fiduciary duties to any partners, co-owners, and shareholders

In general, it's always important to conduct yourself in an ethical manner, and make it clear to everyone around you that you have a policy of always doing so. If something goes wrong and you do get sued, being able to prove that you had "clean hands" can go a long way in reducing your liability.