Business Gift Agreement (LLC or Corporation)
This Business Gift Agreement is meant for a limited liability company (LLC) or a corporation, including if you’re the sole owner of your company.
This type of agreement is typically used when you would like to turn over control of your business to someone else, usually your child or other close family member when you’re ready to retire.
This contract helps define both the terms of the gift and what assets make up your business. However, when you just give your business (instead of selling it) to someone else, the transaction usually incurs gift taxes. Please see the section below for more information on gift taxes.
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BUSINESS GIFT AGREEMENT
THIS BUSINESS GIFT AGREEMENT (the "Agreement”) is made and entered into this ________________ (the "Effective Date”), by and between [INSERT NAME OF OWNER OR OWNERS] (the "Owner(s)”), and [INSERT TRANSFEREE NAME] (the "Transferee”).
WHEREAS, Owner(s) [is/are] the owner(s) and operator(s) of [INSERT BUSINESS NAME], a [LIMITED LIABILITY COMPANY/ CORPORATION] organized under the laws of the State of [STATE] and engaged in the business of ___________________ (the "Business”).
WHEREAS, Owner(s) desires to transfer to Transferee, and Transferee desires to acquire from Owner(s), the above described Business and all of the Transferred Assets (defined below) used in the above described Business;
THEREFORE, the parties hereby enter into this Agreement under the following terms and conditions:
ARTICLE I – DEFINITIONS
1. "Assigned Agreements” means the contracts set forth in the Disclosure Schedule attached hereto.
2. "Copyright Interests” means the copyrightable works or interests Owner(s) may own, or have the right to sublicense of any type worldwide relating to the Business and the Transferred Assets, together with all other copyright interests accruing by reason of United States copyright laws, international copyright conventions and any moral rights relating to the Business and the Transferred Assets, including the right to sue for, settle, or release any past, present, or future infringement thereof.
3. "Confidential Information” means all Trade Secrets, discussions between the parties, and any and all non-public information relating to the Business, the Transferred Assets, or this Agreement, including, without limitation, all technical, developmental, marketing, sales, operating, performance, cost, know-how, business plans, business methods, process information, product information, customer information, licenses, contracts and agreements that is of value to the Business and is treated as confidential by the parties. Unless otherwise specified, all information transmitted between the parties is presumed to be Confidential Information.
4. "Domain Name Interests” means the domain names listed in the Disclosure Schedule attached hereto as Exhibit A, including the right to sue for, settle, or release any past, present, or future infringement thereof.
5. "Goodwill” means the goodwill of Owner(s) in connection with the Business and Transferred Assets together with the exclusive right for Transferee to represent itself as carrying on the Business in succession to Owner(s) and to carry on the Business (and the Transferred Assets) under any name.
6. "Intellectual Property Rights” means any and all rights associated with works of authorship, including, but not limited to, (1) copyrights, (2) trademark and trade name rights and similar rights, (3) Trade Secret rights, (4) patents and (5) all other intellectual property rights in any jurisdiction throughout the world.
7. "Other Interests” means the interests, other than the Trademark Interests, Assigned Agreements, Copyright Interests, Domain Name Interests or Patent Interests, that Owner(s) may own or have the right to sublicense hereunder in (1) any idea, design, concept, technique, invention, discovery, or improvement, whether or not patentable, but including patents, patent applications, Trade Secrets, and know-how; (2) pictorial, literary, website content, graphic, or audio/visual works, including icons, screens, HTML code, characters, data formats, and reports of any type of sort, including the right to sue for, settle, or release any past, present, or future infringement thereof; and (3) any Trade Secrets of the Business.
8. "Patent Interests” means the patents names listed in the Disclosure Schedule attached hereto as Exhibit A, including, without limitation, the right to sue for past, present and future infringement of the Patent Interests, and the right to collect and receive any damages, royalties, or settlement for such past, present and future infringements and any and all causes of action relating to any of the inventions or discoveries described in the Patent Interests.
9. "Transferred Assets” means all property or assets described in Section 2.1.
10. "Transferred Interests” meansall Copyright Interests, Trademark Interests, Patent Interests, Domain Name Interests and Other Interests acquired by Transferee hereunder
11. "Trademark Interests” means any trademark or service mark interests accruing by reason of United States trademark laws and international trademark conventions that relate to the Business and the Transferred Assets, which includes the Goodwill connected with the use of and symbolized by such marks including, without limitation, the right to sue for past, present and future infringement of the Trademark Interests, and the right to collect and receive any damages, royalties, or settlement for such past, present and future infringements and any and all causes of action relating to any of the Trademark Interests, regardless of whether or not such Trademark Interest have been registered.
12. "Trade Secrets” shall have the meaning as provided in the Uniform Trade Secrets Act (Civil Code §3426.1(d)), without limitation, information, including a formula, pattern, compilation, program, device, method, technique, or process that (a) derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use, and (b) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
ARTICLE II – THE BUSINESS PROPERTY
Section 2.1 Transferred Business Assets. Owner(s) hereby agrees to transfer to Transferee and Transferee hereby agrees to acquire from Owner(s) the assets and property described below:
- (a) The Domain Name "______________” and any and all associated website content or materials, including all Domain Name Interests and Copyright Interests thereto;
- (b) all customer lists associated with the Business and the Transferred Assets;
- (c) all other customer information which has been gathered by Owner(s) while conducting its Business, including personal information, payment information and customer feedback information, which is lawfully within the possession and control of Owner(s);
- (d) all the rights relating to the Transferred Assets in connection with contracts, commitments, sales contracts and other contracts and agreements with customers;
- (e) all accounts receivable, notes receivable, accrued interest receivable, claims, deposits, prepayments, refunds, causes of action, rights of recovery, rights of set-off and rights of recoupment with respect to the Transferred Assets;
- (f) the right to use Owner(s)’s signage, branding, and sales pitch;
- (g) any and all logos, displays, creative assets, and other digital graphic files associated with the Business and Transferred Assets;
- (h) all rights to all copyrights, designs, trade styles, trade names, and trademarks including, without limitation, the name "______________” and any other intellectual property used in connection with the Business or the Transferred Assets, including all Copyright Interests and Trademark Interests related thereto;
- (i) any and all agreements, licenses or contracts, in which Owner(s) and/or the Business is a party;
- (j) all Trade Secrets including, but not limited to, all information regarding customers and customers’ requirements, all research, know-how, product formulas and Confidential Information used in the Business;
- (k) all government licenses, permits and approvals issued to Owner(s) with respect to the Business and the Transferred Assets (if any) in effect as of the Closing date, including, but not limited to, those that are listed in the Disclosure Schedule, insofar as such permits are transferable;
- (l) the real property located at [INSERT ADDRESS];
- (m) any and all equipment or machinery used in the operation of the Business; and
- (n) all Goodwill associated with the Business and the Transferred Assets.
Section 2.2 Transfer of Ownership Interest.
- (a) Owner(s) owns 100% of the issued and outstanding [CAPITAL STOCK (for a Corporation) / MEMBERSHIP INTEREST (for an LLC)], consisting of __________ [SHARES/ MEMBERSHIP UNITS] (the "Ownership Interests”) of the Business and Owner(s) desires to transfer the Ownership Interests and all of its interest in the Business to the Transferee.
- (b) In express reliance upon the representations and warranties of the Transferee in this Agreement, the Owner(s) hereby agrees to irrevocably transfer and convey the Ownership Interests to the Transferee, and the Transferee hereby agrees to acquire the Ownership Interests.
- (c) Transfer of Ownership Interests. Upon the Closing (defined below), Owner(s) shall deliver to Transferee certificate or certificates representing the Ownership Interests, duly endorsed to Transferee, which delivery shall vest Transferee with good and marketable title to all of the issued and outstanding shares of [CAPITAL STOCK (for a Corporation) / MEMBERSHIP INTEREST (for an LLC)] of the Business.
Section 2.3 Transfer Restrictions. Transferee is financially able to bear the economic risks of acquiring an interest in the Business and the other transactions contemplated hereby. Transferee has such knowledge and experience so as to be capable of evaluating the merits and risks of, and making an informed business decision with regard to, the acquisition of the Ownership Interests. Transferee is acquiring the Ownership Interests solely for their own account and not with a view to or for resale in connection with any distribution or public offering thereof, within the meaning of any applicable securities laws and regulations, unless such distribution or offering is registered under the Securities Act of 1933, as amended (the "Securities Act”), or an exemption from such registration is available. Transferee has (i) received all the information they have deemed necessary to make an informed decision with respect to the acquisition of the Ownership Interests, (ii) had an opportunity to make such investigation as they have desired pertaining to the Business and the acquisition of an interest therein, and to verify the information which is, and has been, made available to them and (iii) had the opportunity to ask questions of Owner(s) concerning the Business. Transferee has received no public solicitation or advertisement with respect to the offer or acquisition of the Ownership Interests. Transferee realizes that the Ownership Interests are "restricted securities” as that term is defined in Rule 144 promulgated by the Securities and Exchange Commission under the Securities Act, the resale of the Ownership Interests is restricted by federal and state securities laws and, accordingly, the Ownership Interests must be held indefinitely unless their resale is subsequently registered under the Securities Act or an exemption from such registration is available for their resale. Transferee understands that any resale of the Ownership Interests by them must be registered under the Securities Act (and any applicable state securities law) or be effected in circumstances that create an exemption or otherwise do not require registration under the Securities Act (or applicable state securities laws). Transferee acknowledges and consents that certificates now or hereafter issued for the Ownership Interests must bear a legend substantially as follows:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT”), OR QUALIFIED UNDER ANY APPLICABLE STATE SECURITIES LAWS (THE "STATE ACTS”), MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO A REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND QUALIFICATION UNDER THE STATE ACTS OR PURSUANT TO EXEMPTIONS FROM SUCH REGISTRATION OR QUALIFICATION REQUIREMENTS. AS A PRECONDITION TO ANY SUCH TRANSFER, THE ISSUER OF THESE SECURITIES SHALL BE FURNISHED WITH AN OPINION OF COUNSEL OPINING AS TO THE AVAILABILITY OF EXEMPTIONS FROM SUCH REGISTRATION AND QUALIFICATION AND/OR SUCH OTHER EVIDENCE AS MAY BE SATISFACTORY THERETO THAT ANY SUCH TRANSFER WILL NOT VIOLATE THE SECURITIES LAWS.
Section 2.4 Assumed Liabilities. Transferee shall assume and agree to pay, perform and discharge when due any and all liabilities, commitments, contracts, agreements, and obligations of Owner(s), whether known or unknown, asserted or unasserted, accrued or unaccrued, absolute or contingent, liquidated or unliquidated, due or to become due, and whether contractual, statutory, or otherwise, arising out of or relating to the Business or the Transferred Assets on or after the Closing, including, but not limited to, the Liabilities listed on Exhibit A (collectively, the "Assumed Liabilities”).
Section 2.5 Conveyance of Business Interests.
- (a) It is the intent of the parties that the Transferee acquire all assets and ownership of the Business. Although the parties have endeavored to list all such assets in this Agreement, it is the intention of the parties that all rights and assets clearly associated with the Business, even if inadvertently omitted from this Agreement, be included in the sale.
- (b) As of the Effective Date, Owner(s) transfers, grants, conveys, assigns, and relinquishes exclusively to Transferee, in perpetuity (or for the longest period of time otherwise permitted by law), all of Owner(s)’s right, title, and interest in and to the Copyright Interests, Patent Interests, Trademark Interests, Intellectual Property Rights and Other Interests in and to the Business, including all associated Goodwill.
ARTICLE III – DELIVERY OF THE TRANSFERRED ASSETS AND BUSINESS PROPERTY
Section 3.1 Delivery of Transferred Assets and Ownership Interest. After the execution of this Agreement, Owner(s) shall deliver any and all inventory, documents, lists, information and other Transferred Assets and Ownership Interests listed in Sections 2.1 and 2.2 as soon as practicable, which shall not be later than the Closing date.
Section 3.2 Reference Materials for Transferred Interests. To effect the transfer of ownership of the Business, the Ownership Interests and Transferred Interests to Transferee, including the Goodwill of all business connected with the use of and symbolized by the Transferred Interests, Owner(s) shall furnish Transferee with the files and documents (if any) evidencing all Transferred Interests and Ownership Interests.
Section 3.3 Copies of Assigned Agreements. On or before the Closing date, Owner(s) shall deliver to Transferee signed originals of the Assigned Agreements, or if any such signed original cannot be located, Owner(s)’s best copy thereof. Owner(s) may retain copies for archival purposes or its own use.
Section 3.4 Further Assurances. Owner(s) agrees at Transferee’s reasonable request to execute and deliver such further conveyance agreements, and to take such further action, as may be necessary or desirable to evidence more fully the transactions described in this Agreement. Without limiting the generality of such undertaking, Owner(s) agrees:
- (a) To execute, acknowledge and deliver any affidavits or documents of assignment and conveyance regarding the Transferred Interests and Ownership Interests;
- (b) To provide testimony and other evidence in connection with any proceeding affecting the right, title, or interest of Transferee in the Business, the Transferred Assets, and the Ownership Interests; and
- (c) To perform any other acts deemed necessary to carry out the intent of this Agreement.
ARTICLE IV – CONSIDERATION AND CLOSING
Section 4.1 Consideration. Transferee acknowledges and agrees that their obligations under Section 2.4 are material inducements for, and a substantial portion of, the consideration for Owner(s) agreeing to transfer the Business, the Ownership Interests, and the Transferred Assets.
- (a) -- OPTIONAL -- Owner(s) shall be entitled to _________% of the Net Annual Revenues of the Business into perpetuity, which shall be paid within 90 calendar days of the end of each calendar year. "Net Annual Revenues” means the total annual gross revenue for the applicable fiscal year minus all taxes and expenses, including all discounts, returns, cost of goods or services sold, salaries, wages, overhead and any other business expenses.
Section 4.2 Intent. It is the agreement of the parties and the intention of Owner(s) that the Business transfer described in this Agreement shall constitute Owner(s)’s binding obligation and shall be enforceable at law and equity, including, without limitation, against Owner(s) and Owner(s)'s estate, heirs and personal representatives, and their successors and assignees. Owner(s) acknowledges that Transferee has substantially relied, and shall continue to rely, on Owner(s)’s transfer of the Business being fully satisfied as set forth herein. Owner(s) acknowledges that the Transferee has committed substantial resources toward the assumption of the liabilities and operation of the Business.
Section 4.3 Closing. The payments and transactions contemplated by this Agreement shall be made no later than thirty (30) following the Effective Date of this Agreement or such other date as may be mutually agreed upon by the parties in writing (the "Closing”).
Section 4.4 Events Comprising the Closing. The Closing shall not be deemed to have occurred unless and until all Ownership Interests, Transferred Assets and related documents set forth herein shall have been delivered to Transferee.
ARTICLE V – WARRANTIES AND OBLIGATIONS OF OWNER
Section 5.1 No Demand for Additional Payment. Owner(s) agrees that the consideration provided for in section 4.1 is the only compensation that Owner(s) shall receive from the Transferee. In particular, nothing contained herein shall give Owner(s) the right to receive any additional form of payment from any of the Transferee’s use or operation of the Business, the Ownership Interests, or the Transferred Assets, whether in cash or product.
Section 5.2 Authority. Owner(s) represents and warrants that they have the authority to enter into this Agreement on behalf of the Business. This Agreement has been duly and validly executed and delivered by Owner(s) and constitutes the valid and binding agreements of Owner(s), enforceable against Owner(s) in accordance with its terms.
Section 5.3 Title to Assets. Owner(s) further warrants that it is the absolute beneficial Owner(s) of the Business, the Ownership Interests, and the Transferred Assets and all associated assets, with good and marketable title, free and clear of any liens, charges, encumbrances, or rights of others. Owner(s) is exclusively entitled to possess and dispose of the Business, the Ownership Interests, and the Transferred Assets.
Section 5.4 Preservation of Value. Owner(s) agrees to use all reasonable business efforts to preserve the value of the Business and the Transferred Assets prior to the Closing date and will take no action that will impair the value or marketability of the Business and the Transferred Assets.
Section 5.5 Accuracy of Representations and Warranties. Owner(s) warrants to Transferee that each of the representations and warranties made by Owner(s) is accurate, complete, and not misleading. Owner(s) also acknowledges that the Transferee is entering into this Agreement in reliance on each such warranty and representation.
Section 5.6 Liability for Misrepresentations. In the event that Transferee has a claim against Owner(s) relating to one or more representations or warranties made by Owner(s), Owner(s) shall incur no liability to Transferee, unless and until, Transferee provides notice, in writing, to Owner(s) that contains complete details of the claim within twenty-four (24) months of the Closing date.
ARTICLE VI – GENERAL TERMS
Section 6.1 Notice. Any notice under the terms of the Agreement may be made by a (i) written email with a required delivery receipt to sender; or by a (ii)written letter sent by regular mail, postage prepaid, registered or certified return receipt requested. Notices by email are deemed to have been received as of the time and date stamp on the delivery receipt to sender. Notices delivered by mail are deemed to have been received three (3) days after the date of mailing on the return receipt. Each party giving Notice shall address the Notice to the parties at the addresses listed in this Agreement or that may be provided by the Parties from time to time.
Section 6.2 Binding Effect; Benefits. This Agreement shall inure to the benefit of the parties hereto and shall be binding upon the parties hereto and their respective heirs, successors, and assigns. Except as otherwise set forth herein, nothing in this Agreement, expressed or implied, is intended to confer on any person, other than the parties hereto, or their respective heirs, successors, and assigns any rights, remedies, obligations, or other liabilities under, or by reason of, this Agreement.
Section 6.3 Governing Law. This Agreement shall be construed as to both validity and performance and enforced in accordance with and governed by the laws of [INSERT STATE], USA.
Section 6.4 Severability. If any term, covenant, condition, or provision of this Agreement, or the application thereof, to any circumstance shall be invalid, or unenforceable, to any extent, the remaining terms, conditions, and provisions of this Agreement shall not be affected thereby and each remaining term, covenant, condition, and provisions of this Agreement shall be valid and shall be enforceable to the fullest extent permitted by law. If any provision of this Agreement is so broad as to be unenforceable, such provisions shall be interpreted to be only as broad as is enforceable. Where any provision in this Agreement is found to be unenforceable, the Transferee and the Owner(s) shall then make reasonable efforts to replace the invalid, or unenforceable, provision with a valid and enforceable substitute provision, the effect of which is as close as possible to the intended effect of the original invalid or unenforceable provision.
Section 6.5 Assignment. The rights and obligations of the parties under this Agreement shall not be assignable, except with the prior written consent of the other party hereto.
Section 6.6 Headings of Articles, Sections, and Subsections. The headings of Articles, Sections, and subsections used within this Agreement are included solely for the convenience and reference of the reader. They have no significance in the interpretation or construction of this Agreement.
Section 6.7 Construction of Words. Words in the singular shall include the plural and vice-versa, and words importing the masculine shall include the feminine and the neuter and vice-versa, and words importing persons shall include corporations and vice-versa.
Section 6.8 Attorney’s Fees and Costs. The prevailing party in any action shall be entitled to recover from the other party all reasonable costs and expenses so incurred, including but not limited to reasonable attorneys’ fees.
Section 6.9 Entire Agreement. This Agreement constitutes the entire Agreement between the parties and it supersedes all negotiations, preliminary agreements, and all prior and contemporaneous discussions and understandings between the parties and shall not be modified except in writing executed by the parties. The parties expressly acknowledge reading, understanding and receiving a copy of this Agreement. A facsimile copy of this Agreement and any signatures shall be considered for all purposes to be original.
IN WITNESS OF WHEREOF, the parties have executed this Agreement on the date following their signatures.
Trademarks or Trade Names
*Note all starred items are unregistered trade names
Business Licenses or Permits
Tax Consequences of Giving a Business
When you give property to someone – whether it’s your business, house, or cash – that gift is taxed. The gift tax applies if the gift is made while you are still alive, it’s a federal tax on transfers of money or property to other people when you’re getting nothing (or less than full value) in return.
When a business is gifted, typically you need to get a valuation report from a qualified accountant or other financial professional. This is because gift taxes are calculated based on the fair market value (FMV) of the business. The FMV is how much the business would sell for on the open market if it were sold in a non-compulsory sale. This valuation also impacts taxes that may result from any future sale of your business.
There is an exception though. For gifts given to an individual, only those gifts that exceed $15,000 (or $30,000 if jointly given by yourself and a spouse) are taxable each year. This limit applies on an individual basis, meaning if you have three children you could collectively gift them property of $45,000 each year (or $90,000 if you’re married). As a result, if you are planning to give a business to your children or other family, it may be a good idea to do so over the course of several years to minimize taxes.
Gifts made under these limits are not counted as ‘income’ to the recipient – i.e. they don’t have to pay income taxes on the gift. But, these gifts also aren’t tax-deductible for you. So, you can’t list them on your business or personal taxes as an expense or deduction.
If you give someone more than $15,000 in cash or assets (for example, your entire business or an ownership share of your business) in a year to any one person, you need to file a gift tax return (IRS Form 709) to disclose the gift.
On top of the $15,000 exclusion, you also get an $11.7 million lifetime exclusion. And, because it’s per person, married couples can exclude double that in lifetime gifts.
For example, if you give your child $20,000 this year (whether that’s cash, shares of your business or another asset), you’ll use up your $15,000 annual gift exclusion. The bad news is that you will be required to file a gift tax return, however you still probably won’t pay gift taxes. The extra $5,000 ($20,000 - $15,000) simply counts against your $11.58 million lifetime exclusion. Next year, if you give your child another $20,000, the same thing happens: you use up your $15,000 annual exclusion and whittle away another $5,000 of your lifetime exclusion.
The gift tax return you file every year keeps track of that lifetime exemption. If you’re wealthy enough to use up your exclusions, you may have to pay the gift tax. The rates range from 18% to 40%, and the giver usually pays the tax.
For more information visit: https://www.irs.gov/businesses/small-businesses-self-employed/whats-new-estate-and-gift-tax
NB: Before gifting any part of your business or other property you should seek the advice of a qualified accountant or lawyer to make sure you follow IRS rules correctly. Also, please note that the IRS typically changes rates and deduction amounts EVERY YEAR.
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