Sales commission owed when business is sold

[graphite]

I am not sure if this fits in this forum, because I am a small business owner of a monthly publication supported by advertising. I have an independent contractor who sells ads on commission only. This person sells ads generally that will run over several months, often one year. I have the business for sale and the sales person believes she should receive commission on ad sales for advertisers that continue to advertise after the sale of the business under a long term agreement that she sold. The new owner will most likely not use the sales person when they take over the business. I believe the salesperson is owed something, but then again, she won't be around to manage the account for ad changes and other changes in the account that might come up, which she normally has done in the past. Plus she won't be around if the advertiser doesn't pay or tries to stop advertising, which happens, although rarely. She also knows the business is for sale and feels she doesn't have much incentive to sell contracts that might go beyond the sale of the business.

Does anyone know what my legal responsibilities to the sales person are, and also what advice anyone could give that is fair to her just on general principles of treating her fairly. I am open to all suggestions as to how to handle this, as I have never sold a business before and been confronted with this situation.

 

[Mass_Shyster]

The answer depends on any state laws in place, any court decisions by the state court, any agreements in place, and the parties involved.

A business I worked for years ago was sold. ABC Corp was sold to XYZ Corp. XYZ Corp formed ABC Holdings Corp, and transferred all assets from ABC Corp. to ABC Holdings Corp. ABC Holdings Corp negotiated to continue doing business with all ABC Corp customers and vendors. They dissolved ABC Corp, and renamed ABC Holdings to ABC Corp.

If the independent contractor has an agreement with a corporation, then that agreement goes along with the sale. If she has an agreement with YOU, then it remains your problem.

You probably need a local attorney to figure out the details.

 

[graphite]

I am not selling the corporation, but the assets and good will of the publication, so that sounds like it's up to me. I want to be fair to the salesperson as we had a good relationship. Just trying to figure out how to do that.

Thanks for your advice. That's good to know.

 

[adjusterjack]

I want to be fair to the salesperson as we had a good relationship. Just trying to figure out how to do that.

A "fair" way is for you and the salesperson to agree on a set price based on the expected commissions less possible attrition and agree that you pay that amount to the salesperson on the date of sale and your obligations to each other are over. Get the agreement in writing. If you want the salesperson to continue making sales while you still own the magazine you can include a provision whereby you adjust the amount upward depending on the amount of new sales between the time you make the agreement and the date of sale.

After the sale of the magazine the salesperson is free to try to make a new arrangement with the new owner.

 

[justalayman]

I am not selling the corporation, but the assets and good will of the publication, so that sounds like it's up to me. I want to be fair to the salesperson as we had a good relationship. Just trying to figure out how to do that.

Thanks for your advice. That's good to know.

Is the corporation continuing as an active entity?

 

[LdiJ]

A "fair" way is for you and the salesperson to agree on a set price based on the expected commissions less possible attrition and agree that you pay that amount to the salesperson on the date of sale and your obligations to each other are over. Get the agreement in writing. If you want the salesperson to continue making sales while you still own the magazine you can include a provision whereby you adjust the amount upward depending on the amount of new sales between the time you make the agreement and the date of sale.

After the sale of the magazine the salesperson is free to try to make a new arrangement with the new owner.

Realistically you are going to get paid by the buyer based on the ads that have been booked. Realistically you are going to get paid by the buyer based on not only the ads that have been booked but the ongoing advertisement of the ezine.

 

[justalayman]

Realistically you are going to get paid by the buyer based on the ads that have been booked. Realistically you are going to get paid by the buyer based on not only the ads that have been booked but the ongoing advertisement of the ezine.

I’m not sure of that.

Op is selling assets and goodwill specific to the publication, not the business in whole. I saw no mention of whomever is buying the business is buying the obligations of the operation.

As I see it op’s corporation remains liable for any future payments to the IC. How the amount is determined is something op needs to put in the sales agreement with the buyer.

It appears op is attempting to argue sales person shouldn’t be owed their full contracted earnings based on not being able to provide services that don’t seem to be an obligation of the IC’s contract.

I’m especially concerned with the mention of ic wouldn’t be around if the customer doesn’t pay or attempts to terminate the contract prematurely. Unless that is an obligation in the ic’s contract, it’s irrelevent.

From what I see, it should be able to be determined what the earnings are for the existing contracts. It appears ic has been paid when customer pays. Unless there is some reason for that other than it reduces expenditures by the op until they have incoming payments to offset the expenditure, I suggest op calculate total earnings of the current contracts based on existing details and pay ic.

It is up to the op to figure the expenditures into the sales price when selling the publication

 

[LdiJ]

I’m not sure of that.

Op is selling assets and goodwill specific to the publication, not the business in whole. I saw no mention of whomever is buying the business is buying the obligations of the operation.

As I see it op’s corporation remains liable for any future payments to the IC. How the amount is determined is something op needs to put in the sales agreement with the buyer.

It appears op is attempting to argue sales person shouldn’t be owed their full contracted earnings based on not being able to provide services that don’t seem to be an obligation of the IC’s contract.

I’m especially concerned with the mention of ic wouldn’t be around if the customer doesn’t pay or attempts to terminate the contract prematurely. Unless that is an obligation in the ic’s contract, it’s irrelevent.

From what I see, it should be able to be determined what the earnings are for the existing contracts. It appears ic has been paid when customer pays. Unless there is some reason for that other than it reduces expenditures by the op until they have incoming payments to offset the expenditure, I suggest op calculate total earnings of the current contracts based on existing details and pay ic.

It is up to the op to figure the expenditures into the sales price when selling the publication

I think that you misunderstood me to an extent. I pretty much agree with most of what you said here and what I said isn't contrary to what you said here.

 

[PayrollHRGuy]

If the OP sold the Assets (including accounts receivable) and not also the liabilities (at least those directly associated with them) that wasn't the smartest move.

The commission was was one of the cost of sales of the ad little different that the cost of sales associated with actually printing the ad.

EDIT: Originally wrote accounts receivable when I meant accounts payable.

 

[justalayman]

I think that you misunderstood me to an extent. I pretty much agree with most of what you said here and what I said isn't contrary to what you said here.

I said the ic would be owed money from the seller. The publication appears to be an operation within the Corp. If true, the ic’s contract is with the Corp and remains payable by the Corp.

Unless the publicatiN was a legally separate wholly owned subsidiary (in other words, it’s own company), selling the operation of the publication does not take debt away from the Corp unless specifically written into the contract. Op said nothIing of any associated debt of the operstiOn being assumed by the buyer

Selling a publicaion of an ezine rather than a business would be no different than ford motor company selling their Ford Mustang car line. There are internal debts and credits but that is merely a paperwork condition within FoMoCo. The assets are owned by fomoco and the debts are owed by fomoco, not mustang. So, if fomoco sold their mustang, the debts would remain owed by FoMoCo.

 

[graphite]

A "fair" way is for you and the salesperson to agree on a set price based on the expected commissions less possible attrition and agree that you pay that amount to the salesperson on the date of sale and your obligations to each other are over. Get the agreement in writing. If you want the salesperson to continue making sales while you still own the magazine you can include a provision whereby you adjust the amount upward depending on the amount of new sales between the time you make the agreement and the date of sale.

After the sale of the magazine the salesperson is free to try to make a new arrangement with the new owner.

That all makes good sense and am working towards that goal. Thanks

 

[graphite]

Is the corporation continuing as an active entity?

yes, but only in that I will continue some journalism, probably unrelated to the magazine (unless the buyer wants me to contribute articles in the future), but I am retiring.

 

[graphite]

Realistically you are going to get paid by the buyer based on the ads that have been booked. Realistically you are going to get paid by the buyer based on not only the ads that have been booked but the ongoing advertisement of the ezine.

That is true and that is a good point that is almost obvious that I missed. Thanks

 

[graphite]

All of this is a great discussion and has really opened up my thinking on the subject. I am selling the magazine with no financial obligations to the new owner and all accounts receivables and payables will be handled and pro-rated as needed in the sale. If payments in my last issue are not paid to me after the sale, that is my loss and not the new owner's. The break will be from my last issue to the buyer's new one. That's how I originally purchased the magazine 16 years ago, except that owner was his own salesperson and I bought the magazine, not his business. The transition was very smooth and everyone got what was owed to them. The difference is the publication was much smaller back then.

What I really appreciate is all this help, as it appears there is no clear-cut answer, but it's helping me reach an equitable solution. After all, my salesperson and her husband are good friends at this point. This is a small magazine.

 

[HRZ]

If that particular salesman is critical to the buyers success , the buyer might be wise to make sure the salesperson is economically motivate to produce results at least in the short run.