Guide for Illinois owners
Illinois owners: recap options and the state rules around them
Illinois has more written rules around selling a business than most states. Three are worth knowing before you compare a full sale, a majority recap and waiting: the state's M&A broker exemption, its business broker registration law, and the bulk sale notice the buyer files with the Department of Revenue.
This guide explains; it does not advise. Nothing here is tax, legal, accounting or investment advice. Talk to your CPA and attorney.
Control is the dividing line here too
Illinois has a registration exemption for merger and acquisition brokers, adopted under the Illinois Securities Law of 1953. It defines control as "the power, directly or indirectly, to direct the management or policies of a company, whether through ownership of securities, by contract, or otherwise" (14 Ill. Adm. Code 130.830). The federal rules for M&A brokers use the same idea of control and add that the buyer must be active in management (15 U.S.C. 78o(b)(13)). A full sale or a majority recap fits that shape. A passive minority investment does not.
Education only. We do not arrange minority investments, growth-capital raises or other securities offerings. If one may fit your goals, we can refer you to a registered broker-dealer.
Business brokers register with the Secretary of State
Under the Illinois Business Brokers Act, "every person engaging in the business of business brokering shall be registered with the Office of the Secretary of State" (815 ILCS 307/10-10). Whoever you work with on an Illinois sale, it is a fair question to ask about.
The buyer files a notice before closing
Illinois law requires the buyer of the major part of a business's stock of goods, furniture or fixtures, machinery and equipment, or real property to file a notice of the sale with the Department of Revenue "no later than 10 business days prior to the sale or transfer" (35 ILCS 120/5j). The notice includes the names of both parties, the date, a copy of the sales contract and the payment terms. Build those ten business days into your closing timeline.
Most of the state tax steps below are written for the sale of a business or its assets. A majority recap is often structured as a sale of shares or units, and sometimes as an asset sale into a new company with rollover. Which steps apply depends on the structure. Your attorney and CPA decide.
Majority recap, plainly
A buyer acquires a controlling interest. You take most of the value at closing and roll part of it into the buyer's company. If you are offered securities, such as that rolled equity, federal rules require that you receive the issuer's latest year-end financial statements and a balance sheet dated not more than 120 days before the offer (15 U.S.C. 78o(b)(13)). Read them with your CPA.
Read this first. Retained ownership and future upside are possibilities, not promised second paydays. Rolled or retained equity is usually illiquid, often a minority position behind acquisition debt, and can lose some or all of its value.
Before you talk to any buyer
- Decide whether you need to keep control. If you do, a majority recap is off the table.
- Ask your CPA whether an asset sale or an equity sale fits your entity better.
- Plan for the Department of Revenue notice and any withholding in the timeline.
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