If you are either the buyer or seller of a business and there is a business broker involved as an intermediary, it is important you know what the relationship is to either party.
It is important to know who the business brokers are working for, and the duty of care they are responsible to provide also.
In other words, determine if they have a fiduciary responsibility.
When a business is sold, a business broker (typically) represents the seller.
The business owner is usually the client and the business brokerage is the fiduciary.
There is typically a contract drafted that stipulates the duty the broker has to the seller and vice versa.
The contract, or listing agreement, amongst other things, usually lays out terms of compensation (commission rate, retainer, flat fee, etc.
), term of the listing, business assets to be sold and who the seller is exactly.
The key is that the business broker is more often than not working for the seller from the very beginning.
Another key take-away is that business for sale listings are often "exclusive" and business brokerages do not co-operate with other business brokers.
Under these terms, a business broker's job is to find the buyer for the seller but he or she will most likely not split the commission if the buyer came from another broker.
Listings are most likely not MLS - they are exclusive to a particular brokerage in most cases.
This is most often the case in Ontario, Canada.
The role of the business intermediary is to find buyers for the company and essentially put the deal together.
A scenario may arise, however, where another brokerage does have the perfect buyer.
In the case of an exclusive, non-co-operating listing, the buyer would most likely be responsible for paying a fee of some sort to the buyer's agent.
Another more common scenario is a business buyer who approaches a business broker on one of their business for sale listings on their own, without another business broker on the buyer's side.
If you are the purchaser it is critical that you know where you stand with respect to your relationship with the business broker from the very beginning.
There are a couple possible outcomes here.
A brokerage can take you on as a client where they would also treat you with a fiduciary duty.
In this case, they would be faced with a multiple representation scenario and an inherent conflict of interest does present itself.
In order to act ethically and fairly to both parties in a dual-agency role, a brokerage must disclose from the very beginning that it is representing both parties and also get written consent from the buyer and seller of the business that they agree with this.
In Ontario, a brokerage is governed under the Real Estate & Business Brokers Act which is a well-respected statute in the industry to provide protection to both sides.
Another possibility is that a brokerage may represent a seller but not a buyer.
A brokerage still has an obligation to act with fairness, honestly and ethics to a buyer, even if they are not represented.
Here, a buyer can get their own broker or decide to work on their own and rely on the advice of advisors such as their lawyers or accountants.
Overall, if you are either a seller of a business or a buyer and you must understand the role that a brokerage plays in the deal.
Do not hesitate to talk to an attorney if you need further clarity.