When you’re buying, selling, or licensing a business, there’s more at stake than just inventory or office space. You’re also acquiring (or parting with) contracts, intellectual property, customer goodwill, and sometimes entire operational systems. This article will help you understand how contracts and licensing function within small business transactions—and how to avoid critical pitfalls like naked licensing, which can threaten your brand’s value and legal protections. Whether you’re entering a new venture or preparing to exit, North City Law can help structure and safeguard the deal.
At North City Law, our business transaction lawyers help Washington entrepreneurs, property owners, and investors structure purchases, sales, and licensing agreements that safeguard assets, preserve goodwill, and minimize legal risk. Whether you are expanding, exiting, or rebranding, we help ensure each deal is compliant, strategic, and aligned with your long-term goals.
What Should You Know About Small Business Purchase and Sale Transactions?
A business purchase or sale involves more than just transferring ownership. These transactions can include tangible assets like furniture and equipment, but often the more important aspects are intangible—contracts, intellectual property, customer relationships, and brand reputation.
Depending on the structure, buyers may purchase the business entity itself (stock purchase or membership interest purchase) or just its assets (asset purchase). The latter can make a lot of sense for small business sales because it allows buyers to choose which assets and liabilities to take on. But no matter the structure, these deals often come with legal complexities requiring clear documentation and a sharp eye for risk. Even when all parties agree and are agreeable, it is still often well worthwhile to formalize agreements clearly in writing.
A business purchase and sale lawyer can help you structure asset or stock transactions to minimize tax exposure and liability while ensuring each party’s rights and responsibilities are clearly defined.
How Does Business Licensing or Franchising Work in Washington?
Not all business acquisitions involve purchasing the entire company or even its core assets. In some cases, the transaction is structured as a license to operate under an established brand, often in the form of a franchise or brand-use agreement. These arrangements allow the buyer to run a business using the seller’s name, trademarks, proprietary systems, and marketing—without acquiring actual ownership of those assets.
This kind of business format licensing is common in industries like food service, fitness, and home services. The licensee gets access to a pre-packaged business model and customer goodwill but must adhere to strict standards laid out by the licensor. These contracts often:
- Limit the territory in which the licensee may operate.
- Require training, quality controls, and compliance with an operations manual.
- Include royalties or licensing fees based on sales or a flat rate.
- Allow for revocation if performance standards aren’t met.
Unlike the risks of naked licensing (where too little control leads to a loss of rights), franchise-style agreements are often highly structured to preserve brand consistency and legal protection. Still, these arrangements must be carefully reviewed—especially for restrictions on assignment, renewal, or termination. For buyers, the real value often lies in the brand’s reputation and the support system behind it—not the hard assets themselves.
As business licensing attorneys with decades of experience, we can review franchise or brand-use agreements to ensure compliance with Washington’s franchise disclosure laws and to help clients understand renewal, royalty, and termination terms before signing.
What Happens to Service Contracts When You Sell a Business?
Most small businesses sell services through contracts—whether formal agreements, purchase orders, or recurring invoices. These revenue-generating contracts may involve clients, customers, or other third-party payers. In a sale, the buyer usually wants these income streams to continue seamlessly, which often requires:
- Assigning the contracts to the new owner.
- Ensuring no “change of control” provisions are triggered.
- Confirming that clients are willing to continue under new ownership.
In the context of a brand, this is also where licensing concerns arise. If a brand or trademark is involved, buyers need to ensure the continued delivery of services matches consumer expectations, or the brand’s value could be compromised. Our business transaction attorneys can review and assign client contracts to ensure income continuity, prevent default triggers, and protect the goodwill that drives the company’s value.
What Should Buyers Review in Existing Vendor or Supplier Contracts?
On the flip side, small businesses often have contracts to procure the services they need—like vendor relationships, software licenses, maintenance contracts, or supplier agreements. Buyers should evaluate whether these contracts are:
- Assignable to the buyer.
- Favorable or burdensome (e.g., long-term commitments or high fees).
- Likely to survive the ownership change.
Missteps here can lead to costly surprises, such as the need to re-negotiate key agreements post-closing or losing essential services altogether. A Washington business transaction lawyer can evaluate vendor and supplier agreements, helping buyers avoid unfavorable commitments and ensuring key services continue post-closing.
Why Do Contract Inheritances Matter in Business Purchases?
When you buy a business, you often inherit its web of existing contracts—for both selling and buying. This means you’re stepping into ongoing relationships, expectations, and obligations. Poorly understood or unassigned contracts can create legal headaches or revenue disruptions.
In addition, inheriting client-facing contracts and delivering under a known brand introduces a duty to maintain service quality. If the brand was part of the purchase, and you fail to meet customer expectations, this not only risks breach claims—it may also lead to something worse: the erosion or outright loss of trademark protection. As business transaction attorneys, we ensure that existing contracts are properly assigned or renegotiated, reducing the risk of post-sale disputes and operational disruptions.
What Is Naked Licensing and Why Is It So Dangerous for Business Owners?
Naked licensing occurs when a trademark owner allows another party to use the brand without maintaining quality control. In a business sale, if a buyer continues using a brand or mark without appropriate oversight from the original owner—or without a solid transition plan in place—it can be deemed “naked.”
This results in:
- Loss of trademark rights: Courts may find the mark has been abandoned.
- Damage to consumer trust: Inconsistent quality can confuse or disappoint customers.
- Frustration among licensees: Particularly if the brand’s reputation declines.
Even in asset sales where the trademark is transferred outright, the buyer must continue to use the mark in a way consistent with its historic reputation, or risk the same dilution and loss.
A Washington business attorney can help you structure trademark transfers or licensing agreements that maintain quality control standards, protecting your intellectual property and brand reputation.
How Can You Avoid Naked Licensing and Trademark Loss?
Consult an Attorney Early
Don’t wait until you’re drafting the contract. An experienced business attorney can help you structure the transaction to avoid unintended liabilities and preserve your brand.
Use Formal Licensing or Assignment Agreements
If trademarks or brand assets are staying with the seller, use a formal licensing agreement with clear quality control provisions. If they’re transferring to the buyer, ensure the use continues seamlessly to avoid claims of abandonment.
Understand What You’re Buying (or Selling)
From software licenses to domain names and customer agreements—know which assets are included, and which require special handling.
Document Everything
Your agreements should outline the terms, scope, quality expectations, and what happens if things go wrong. Clear documentation is your best protection.
Working with an experienced business licensing attorney helps ensure your contracts are comprehensive, enforceable, and properly aligned with your IP strategy and operational needs.
What Regulatory or Business Licenses Should You Review Before a Sale?
While intangible assets like trademarks and goodwill are critical to a business’s identity, many businesses also rely on government-issued licenses or permits to operate legally. These are different from brand or IP licenses—regulatory licenses come from public agencies and cover compliance, safety, or professional qualifications.
In many small business sales, these licenses are:
- Non-transferable: The new owner must apply for and secure their own license.
- Time-sensitive: Some permits expire or must be renewed during the transaction.
- Entity-specific: A change in ownership, structure, or control can invalidate an existing license.
Common examples include liquor licenses, health department permits, contractor registrations, day care certifications, and professional licenses. Buyers must investigate:
- Whether any required licenses are active and in good standing.
- What process is required to secure new licenses, and whether conditional approval can be obtained before closing.
- How delays or denials might impact the deal—especially in highly regulated industries.
Failing to account for these details can delay business operations or trigger penalties. As part of any due diligence process, it’s vital to work with legal counsel to confirm which licenses are required, which can be transferred, and how best to handle the transition. A business transaction lawyer can help confirm which permits can transfer, which require reapplication, and how to maintain compliance during ownership transition.
Why Are Goodwill, Client Lists, and Key Employees So Valuable in a Business Sale?
In many small business transactions, the most valuable assets aren’t listed on a balance sheet. These include:
- Goodwill: The business’s reputation, customer loyalty, and brand identity.
- Client Lists: These can be legally protected trade secrets or part of an assignable asset.
- Key Employees: Retaining experienced staff can ensure continuity and preserve institutional knowledge.
If these elements aren’t addressed in the purchase agreement—or if the transition is mishandled—they can vanish quickly after closing, undermining the value of the deal.
Partnering with a Washington Business Transaction Attorney
Buying, selling, or licensing a business is never just about transferring assets—it’s about protecting value and future opportunity.
At North City Law, our Washington business transaction lawyers provide hands-on legal guidance for entrepreneurs, buyers, and sellers across all industries. From due diligence to closing documents, we help ensure every aspect of your transaction is handled carefully, compliantly, and with your business goals in mind. Schedule a consultation to discuss your next deal with confidence.