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Business brokers, also called business transfer agents, or '''intermediaries''', assist buyers and sellers of privately held business in the buying and selling process. They typically estimate the value of the business; advertise it for sale with or without disclosing its identity; handle the initial interviews, discussions, and negotiations with prospective buyers; facilitate the progress of the Due Diligence investigation and generally assist with the business sale. AGENCY RELATIONSHIPS WITH CLIENTS AND CUSTOMERS Traditionally, the broker provides a conventional full-service, commission-based brokerage relationship under a signed listing agreement with a seller or "buyer representation" agreement with a buyer, in most states thus creating under common law an agency relationship with fiduciary obligations. Some states also have statutes which define and control the nature of the representation. These are then clients of the broker. Agency relationships in business ownership transactions involves the representation by a business broker (on behalf of a brokerage company) of the principal, whether that person or persons is a buyer or a seller. The principal broker (and his/her agents) then becomes the agent of the principal who is the broker’s client. The other party in the transaction who does not have an agency relationship with the broker is the brokers customer. Transactions Brokers In some states, business brokers act as transactions brokers. A transaction broker represents neither party as an agent, but works to facilitate the transaction and deals with both parties on the same level of trust. Dual or limited Agency Dual agency occurs when the same brokerage represents both the seller and the buyer under written agreements. Individual state laws vary and interpret dual agency rather differently.
TYPES OF SERVICES THAT A BROKER CAN PROVIDE Since each state's laws may differ from others, it is generally advised that prospective sellers or buyers consult a licensed real estate professional. Some Examples:
GENERAL The sellers and buyers themselves are the principals in the sale, and business brokers (and the principal broker's agents) are their Agents As Defined In The Law . However, although a business broker commonly fills out the Offer To Purchase form, agents are typically not given Power Of Attorney to sign the Offer To Purchase or the Closing Documents ; the principals sign these documents. The respective business brokers may include their brokerages on the contract as the agents for each principal. The use of a business broker is not a requirement for the sale or ) will ensure that all parties involved be paid. Lenders typically have other requirements, though, for a loan. The market served by business brokers generally involves the sale of businesses with transaction values less than $10 MM. Larger privately held companies are classified in the Middle Market and will employ firms that specialize in Mergers and Acquisitions, or M&A. However, business brokers do participate in mergers and acquisitions activities when it involves a transaction between two or more smaller companies. Business Brokers and M&A firms do overlap activities in the extremes of their market. These extremes are called the Transitional Market, or TransMarket. BUSINESS BROKERS AND SELLERS Services provided to seller as client Upon signing a listing contract with the seller wishing to sell the business, the brokerage attempts to earn a commission by finding a buyer for the sellers' business for highest possible price on the best terms for the seller. To help accomplish this goal of finding buyers, a business brokerage commonly does the following:
Business brokers attract prospective buyers in a variety of ways, including listing limited details of available businesses on their websites and advertising in business newspapers and magazines. Brokers also directly approach prospective buyers and sellers to gauge interest. The "listing" contract Although there can be other ways of doing business, a business brokerage usually earns its commission after the business broker and a seller enter into a Listing Contract and fulfill agreed-upon terms specified within that contract. The seller's business is then ''listed'' for sale, often on a Business specific Multiple Listing Service (MLS) in addition to any other ways of advertising or promoting the sale of the property. In most of North America, a listing agreement or contract between broker and seller must include the following: starting and ending dates of the agreement; the price at which the business will be offered for sale; the amount of compensation due to the broker. Brokerage commissions In consideration of the brokerage successfully finding a satisfactory buyer for the property, a broker anticipates receiving a Commission for the services the brokerage has provided. Usually, the payment of a commission to the brokerage is contingent upon finding a satisfactory buyer for the business for sale, the successful negotiation of a purchase contract between a satisfactory buyer and seller, or the settlement of the transaction and the exchange of money between buyer and seller. In North America a commission in the 10% to 12% range is considered "standard" for business brokerage services and is typically paid by the seller at the closing of the transaction. The standard commission is likely to be lower in the United Kingdom (see Lehman Scale ). Commissions are negotiable between seller and broker. The commission could also be paid as Flat Fee or some combination of flat fee and percentage, particularly in the case of lower-priced businesses, businesses in the multi-million dollar price, or other unusual business assets. The details are determined by the listing contract. Out of the commission received from the seller, the broker will typically pay any expenses incurred to do the work of trying to sell the listed businesses, such as advertisements, etc. All compensation to a broker paid by a third party must be disclosed to all parties. LICENSING OF BUSINESS BROKERS In the US, licensing of business brokers varies by state, with some states requiring licenses, some not; and some requiring licenses if the broker is commissioned but not requiring a license if the broker works on an hourly fee basis. State rules also vary about recognizing licensees across state lines, especially for interstate types of businesses like national franchises. Some states, like California, require either a broker license or law license to even advise a business owner on issues of sale, terms of sale, or introduction of a buyer to a seller for a fee. The following require a license to practice as a business broker: Arizonahttp://www.re.state.az.us/, Arkansas, California, Coloradohttp://www.dora.state.co.us/real-estate/manual/manual_2007/Ch22.pdf, Florida, Georgia, Idaho, Illinois, Michigan, Minnesota, Nebraska, Nevada, Oregonhttp://faqs.rea.state.or.us/absolutefm/?f=110, South Dakota, Utah, Wisconsin, and Wyoming. In all states the broker must be a licensed Real Estate Agent if real estate interest is involved in the transaction or the transfer of real estate interest is a requirement for the sale. ASSOCIATIONS OF BUSINESS BROKERS The largest association of business brokers in the US is the International Business Brokers Association. The American Business Brokers Association was formed recently and is growing rapidly. Many states have their own associations, e.g., the Texas Association of Business Brokers. The most well known sponsored designations are the following:
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