Business Brokers: The Imperative of Confirming Ownership – a Tale of Deceit
3 November 2025: Business Brokers: The Imperative of Confirming Ownership – a Tale of Deceit
In the world of business brokerage, one of the most critical elements of a successful transaction is ensuring that the right people are authorized to make decisions on behalf of the business. This is particularly important to establish as a rule in your practice as many businesses can have multiple owners – some silent or invisible – and misunderstandings about ownership and authority can lead to wasted time, lost opportunities, and damaged reputations.
This true story, related by one of the business brokers in our network, involves a business with three owners – two of whom were brothers – and it illustrates the importance of a broker thoroughly verifying the identity and authority of their selling clients before proceeding with a sale. This scenario offers valuable lessons in how to avoid costly mistakes and ensure smooth, successful transactions.
The Situation: The Broker’s Oversight
The situation begins when one of the brothers contacted a business broker to inquire about selling the company. The broker, not having any indication from this brother that there were other owners, agreed to list the business for sale. Four months later, after the broker invested significant time and resources into finding a buyer – and actually producing an offer – the brother revealed that he had not discussed the potential sale with his two partners; had not, in fact, even mentioned there were other owners! When the brother finally informed his partners, they were furious – neither partner was interested in selling the business.
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As a result, the broker’s time, effort, and marking investment were wasted. Worse still, the potential buyer, who had been enthusiastic about the purchase, was left frustrated, resulting in reputational damage to the broker. This scenario could have been avoided with proper due diligence on the business broker’s part in verifying the ownership structure and ensuring that all relevant parties were on board with the decision to sell.
The Lesson: Verifying the Authority of the Seller
This story highlights the critical need for business brokers to verify who their selling clients are. Even if one owner, such as the brother in this case, expresses interest in selling, it’s essential for the broker to establish that either 1), they are the sole owner or, 2), they have the authority to act on behalf of all owners. Failing to do so can have significant consequences, including wasted resources, tarnished reputations, and the loss of potential buyers.
Here are the steps brokers should take to prevent this kind of situation:
- Confirm Ownership and Ownership Structure
Before even considering listing a business for sale, a business broker must confirm who owns the business and how it is structured. In the case of a partnership or other multiple ownership entities (LLC; corporation), it is critical to verify the names and shares of all partners or owners. This should be documented in a formal agreement—often referred to as an members agreement (for LLCs), a shareholder agreement (for corporations) or a partnership agreement (for partnerships)—which outlines who has decision-making authority, what percentage of the business each owner holds, and the process for making major decisions, including selling the business.
A business broker should request and review a copy of this agreement early in the process to ensure they understand the ownership structure. This step is necessary not only for avoiding confusion later but also for ensuring compliance with the legal and financial interests of all parties involved.
- Obtain Written Authorization from All Owners
While it’s tempting to trust a single party when they come forward with the desire to sell, business brokers should never rely solely on one individual, no matter how well they know them. In the case of the brothers, the broker was misled by one brother who, by implication, presented himself as the sole owner.
To protect themselves, After reviewing the partnership or similar agreement, business brokers should require written authorization from all owners before moving forward with a sale. Though this authorization is generally given via an entity resolution, it might also take the form of a signed letter or a formal power of attorney that clearly states who is empowered to make decisions on behalf of the business.
- Discuss the Sale Process with All Owners Early On
As a precautionary measure, brokers should, to the extent feasible, facilitate a meeting or discussion involving all owners at the outset of the sales process. This ensures that everyone is on the same page about the intent to sell and the goals of the transaction. If one owner is reluctant to sell, this is the time to address their concerns and work through any issues before wasting valuable time trying to secure a buyer.
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This conversation should include the following key points:
- The reasons for selling: Why do the owners want to sell the business? Is there agreement on this point?
- The expectations for the sale: Are all owners in agreement on the financial terms, timing, and buyer preferences?
- The roles of each owner in the process: Who will communicate with the broker and potential buyers? Are there specific roles for each owner in the negotiation?
By addressing these points early, the broker can mitigate the risk of misunderstandings later in the process. Additionally, if the ownership group has conflicting opinions, it’s better to know that at the beginning rather than after significant time and effort has been invested.
- Establish Clear Communication Channels
It’s crucial for business brokers to establish clear communication channels with all owners from the very beginning. In many cases, especially with family-owned businesses, one owner may assume they can make decisions on behalf of others without seeking explicit consent. However, this can lead to serious problems down the line, as illustrated by the brothers in this case. The key is ensuring that all parties are consistently informed and included in conversations regarding the sale process
Brokers should require regular updates and check-ins with all owners, ensuring that everyone is aligned on the next steps. If a disagreement arises, the broker can step in to mediate and help find a solution before the process moves forward.
- Legal and Financial Considerations
Before proceeding with any sale, brokers should be aware of the legal and financial implications of the ownership structure. If there are multiple owners, it’s likely that there will be specific legal requirements for transferring ownership or shares in the business. For example, some member/shareholder/partnership agreements may include buy-sell clauses that outline how ownership can be transferred – including among the current owners – and under what conditions. The broker must be familiar with these provisions to ensure that the sale complies with the owners’ legal agreements.
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Additionally, business brokers should be aware of any potential financial complications that could arise from the ownership structure. For example, if one of the owners has significant personal debt or liabilities, this could affect the valuation or sale terms. A thorough review of the business’s financial records, including its liabilities and obligations, is crucial to avoid surprises later.
The Consequences of Failing to Verify Ownership
When brokers fail to verify the authority of their clients or the ownership structure, several consequences can arise:
- Wasted time and resources: As seen in the story, brokers may invest months of time and effort finding a buyer only to find that the sale is not authorized by all owners. This results in a significant waste of time and money.
- Frustrated buyers: Potential buyers who have been engaged in the process may become frustrated when the sale is suddenly derailed, potentially leaving the broker with a tarnished reputation and the buyer walking away.
- Damaged reputation: If a broker’s credibility is damaged due to miscommunication or misunderstandings, it can be difficult to regain the trust of future clients. Word of mouth is essential in the brokerage business, and reputation is everything.
- Legal issues: If a sale goes forward without proper authorization from all owners, the transaction could be legally contested, leading to potential lawsuits or claims against the broker.
This cautionary tale pertains to a business broker’s valuation work, as well. When accepting a valuation assignment to value a business, we nearly always require a signed document memorializing our agreement. The necessity of confirming the person giving us the go-ahead is authorized to do so significantly increases the odds that we’ll get paid for our work.
The Bottom Line
The story of the brothers and the business broker serves as a cautionary tale about the importance of verifying who actually owns the business and who the true decision-makers when accepting and engagement to value the business and, certainly, when agreeing to list a business for sale. For business brokers, the consequences of failing to properly vet the ownership structure and obtain proper authorization from all parties can be significant. By taking the time to verify the ownership, ensuring that all owners are on board with the sale, and establishing clear communication, brokers can prevent these types of situations from arising and protect both their clients and their reputations. Ultimately, due diligence is the key to a successful and smooth business sale process.
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“The way to get started is to quit talking and begin doing.“
– Walt Disney
If you have any questions or comments on this topic – or any topic related to business – I’d like to hear from you. Put them in the comments box below. Start the conversation and I’ll get back to you with answers or my own comments. If I get enough on one topic, I’ll address them in a future post or podcast.
I’ll be back with you again next Monday. In the meantime, I hope you have a safe and profitable week.
Joe
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The author is the founder, in 2001, of Worldwide Business Brokers and holds a certification from the International Business Brokers Association (IBBA) as a Certified Business Intermediary (CBI) of which there are fewer than 1,000 in the world. He can be reached at jo*@*******************og.com